Digitalisation Slowed Down by Coronavirus

Contrary to public perception, the COVID-19 pandemic did not help to advance digitalisation in Germany. Companies did indeed spend more money on technology that enables working from home and virtual collaboration. At the same time, however, investments in state-of-the-art production equipment declined, as did those in cutting-edge analysis and planning technologies and digitally supported customer management. Larger projects in particular were postponed or abandoned altogether. These are the findings of a study conducted jointly by ZEW Mannheim, the Institute of Labor Economics (IZA), the Institute for Employment Research (IAB), the Luxembourg Institute of Socio-Economic Research (LISER) and other research institutions on the basis of a representative company survey.

“On the one hand, these pandemic-related investments helped companies to mitigate the negative consequences of the pandemic. They were able to increase the frequency of working from home and reduce short-term work. However, these adjustment investments were made at the expense of other technology investments, which may be contributing to the current weak level of productivity growth in Germany,” explained Professor Melanie Arntz, co-author of the study and deputy head of ZEW’s “Labour Markets and Social Insurance” Research Unit.

The majority of investments in modern digital technologies were made before the pandemic, while investment activity declined overall during the pandemic. The pandemic-related investment gap amounts to around 50 per cent. Contrary to public perception, the pandemic did not provide a boost to digitalisation, but actually set technology development in Germany back by almost a year and a half.

Based on the results of the study, Arntz predicts the following for the period after the pandemic: “We suspect that the energy price shock and the rise in uncertainty that occurred in Germany after the pandemic with the onset of the war in Ukraine has contributed to a further postponement of major investments, even since the pandemic has subsided. This does not bode well for productivity growth in Germany or for the recovery of the economy.”