By Nina Adam 

FRANKFURT--German companies are sitting on a half-trillion dollars of cash but are reluctant to invest it in their own country, potentially threatening the country's competitive edge and European economic growth.

Germany's nonfinancial businesses have saved more than they have invested for the past seven years, piling up about EUR455 billion ($500.4 billion) in cash and deposits, German central bank data show.

Executives blame their reticence on a weak economic outlook, regulatory uncertainties and geopolitical risks. Siemens AG Chief Executive Joe Kaeser said recently the company "is taking a very cautious approach to 2017" because of rising geopolitical uncertainties that complicate assessing investment risks. Economists also cite higher labor costs and outdated public infrastructure for dwindling domestic corporate investment.

The problem isn't unique to Germany. Companies in other developed countries have also been investing less since the financial crisis. But Germany's low investment is striking given the country's relatively robust economic performance--especially compared with other European countries--and its record-low unemployment.

Advocates of higher corporate investment say German parsimony is troubling, because the economy depends to such a large degree on research- and capital-intensive industries. It risks weakening the ability of Europe's largest industrial power to grow and create jobs in future, with negative consequences for all of Europe.

"We need to be careful that Germany doesn't fall behind technologically because of persistently low investment," said Reinhold Festge, head of the German engineering-sector association VDMA, which represents over 3,100 midsize companies.

A recent survey of German blue-chip companies by The Wall Street Journal indicates hesitation. Of 11 companies in the DAX-30 stock index that disclosed their investment plans, five said they plan no increase in capital expenditure this year or next. Five others said they plan increases, but mostly outside Germany. The last company, scandal-plagued car maker Volkswagen AG, said it was canceling or delaying all investment projects that it doesn't consider "core."

Over the past decade, German companies have grown more enthusiastic about investing abroad than at home, according to a recent survey of more than 300 large German firms by the country's state-owned development bank KfW. They see better growth opportunities abroad, partly because Germany's shrinking and aging population.

Bayer AG is buying Monsanto Co. of the U.S. for $57 billion, in what would be one of Germany's largest foreign takeovers ever. Deutsche Börse AG is merging with British rival London Stock Exchange Group PLC to create Europe's largest stock-exchange operator.

Industrial group Thyssenkrupp AG, affected by falling world prices for steel, is keeping investment broadly flat, at a level well below past peaks. Its domestic investments will stress upkeep, while it plans to grow its component businesses in China and Mexico.

Chip maker Infineon Technologies AG also plans to invest more abroad. "Being close to our customers and finding the right talented people is crucial," a spokesman said.

Germany's economic power, however, hinges on the strength of its domestic industrial base. "It should be a major issue in the next election," said Michael Heise, the chief economist at Allianz SE, referring to the national polls next fall. "But unfortunately, a package to stimulate corporate investment in Germany isn't in sight."

A survey of over 10,500 German midsize companies by KfW released Tuesday showed German business investment will rise only modestly this year, following a drop in 2015.

"Expectations for strong rise in corporate investment failed to materialize," said Jörg Zeuner, KfW's chief economist. This restraint, which has been visible for many years, has already left a mark on the productivity of Germany's thousands of midsize, or Mittelstand, enterprises, Mr. Zeuner said. "It also threatens to hurt their ability to grow and create jobs in future." Producing mostly in Germany, Mittelstand companies are the backbone of Germany's economy.

Dirk Schumacher, chief German economist at Goldman Sachs, said one reason for the low investment rates might be companies "want to remain prepared for a possible renewed freezing of bank funding or access to capital markets."

Corporate savings, added to those of German households and the government, mean the country overall saves far more than it invests, and lends the excess savings abroad. Last year that imbalance--called the current-account surplus--reached 8.5% of gross domestic product, or EUR257 billion. It is forecast to increase this year. By comparison, the U.S. and the U.K. ran current-account deficits last year.

"Germany is massively wasting its potential to grow," said Martin Gornig, an economist at the German Institute for Economic Research in Berlin, noting companies in the U.S. and China have more aggressively modernized their production facilities.

With an aging population, he noted, "Germany needs higher investment to boost productivity and safeguard its economic prosperity in the years to come."

Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

October 25, 2016 05:40 ET (09:40 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.