Spillover Effects of Data Centers: The Backbone of the AI Revolution in Germany

Artificial Intelligence (AI) offers enormous growth potential for Germany as a business location, serving as a catalyst for increased productivity, innovation and efficiency – not just for companies, but for the entire economy. Digital infrastructures, particularly data centers, play a central role in this development, as they provide the necessary computing power, data processing, and networking capabilities for digital transformation.

On behalf of the Alliance for the Strengthening of Digital Infrastructures in Germany, founded by eco Association, we at IW Consult have conducted the study, “Spillover Effects of Data Centers: The Backbone of the AI Revolution in Germany,” with extended support by Digital Realty and Amazon Web Services (AWS). This study explores the innovation potential of AI and quantifies the spillover effects of data centers – for instance, on employment and revenue growth in the context of the AI shift, based on a company survey.

Key findings of the study

Our research reveals:

• Generative AI is a key enabler of digital transformation
• Data centers are the backbone for the effective use of AI
• Data centers compensate for the distance disadvantages of companies located in rural areas
• Cloud boosts innovation and productivity
• 5.9 million employees depend on the cloud - 126,000 more every month
• 250 billion Euro gross value added is triggered by cloud use
• Data centers located in Germany are essential for companies

Data centers: The invisible backbone of the digital economy

At the heart of the digital transformation, data centers enable the processing and storage of vast amounts of data generated by the rapid advance of digital technologies, including AI. Although often unseen, these infrastructures are integral to the functioning of virtually every sector of the economy, supporting everything from cloud computing to the AI-driven systems that power modern businesses.

Germany faces a significant digital infrastructure gap compared to countries like the United States, which has recently accelerated investments in AI and cloud computing infrastructure with bipartisan support. As global competition intensifies, Germany must strengthen its position by expanding data center capacity and implementing supportive policies for AI-driven industries.

AI: The catalyst for growth and productivity

AI technologies are reshaping German industries from manufacturing to healthcare by automating processes, optimizing operations, and enabling new business models. Our research demonstrates that companies leveraging AI through cloud services experience substantial productivity gains.

Data centers provide the computational resources necessary for AI implementation while offering businesses the flexibility to scale operations without the limitations of on-premises infrastructure. This particularly benefits small and medium enterprises (SMEs), allowing them to access advanced technologies previously available only to larger corporations.

The impact on rural areas and small companies

One of the standout findings of the study is that data centers can offset the geographic disadvantages faced by companies in rural areas. Traditionally, businesses located outside major metropolitan areas have faced challenges related to digital infrastructure, including limited access to cloud computing and AI services.

However, the rise of data centers in Germany offers a solution. By providing high-performance digital infrastructure, rural companies can now tap into the benefits of AI and other digital tools at the same rate as their urban counterparts. This democratization of access can help level the playing field, enabling rural companies to innovate and grow in ways that were once impossible.

Data centers as drivers of economic growth

The economic impact of data centers in Germany is profound. Our study estimates that the gross value added from the use of data centers, especially in the context of AI and cloud services, is approximately 250 billion Euros. This includes not only the direct benefits that companies experience from using data center services but also the broader economic effects, such as job creation and productivity growth.

In 2024, around 5.9 million employees in Germany worked in businesses whose operations depend on the cloud, with an additional 126,000 people joining the workforce each month. The rapid growth of cloud-dependent businesses now highlights the increasing importance of digital infrastructure in driving economic prosperity.

Moreover, the use of AI, fueled by data centers, is enabling companies to generate a significant share of their revenue from new products and services. Data centers act as the foundation for innovation, allowing companies to experiment, iterate, and scale their AI-driven solutions.

The importance of localized data centers

While the global nature of the internet and cloud services means that data centers are increasingly spread across borders, the location of data centers remains a crucial issue for many companies. According to our findings, nearly half of German companies consider it important that their data centers are located within the country. This preference is driven by concerns over data sovereignty, privacy, and the reliability of domestic infrastructure.

For Germany to remain competitive, it is essential that the country accelerates the development of local data center infrastructure. The recent investments by international giants like Microsoft, Google, and AWS, which have committed billions of Euros to building data centers in Germany, reflect the growing recognition of this need.

The path forward: Recommendations for action

To fully capitalize on the potential of AI and digital transformation, Germany must prioritize the development of its digital infrastructure. This includes:

1. Accelerate the expansion of digital infrastructure:

• In order to create the necessary data center capacities, a new land use and approval policy is required that has a supportive rather than hindering effect on this process. A change of mindset is needed among some decision-makers so that the required data center capacities can be established at the necessary speed – for example, with regard to planning and approval processes

2. Increase ICT investments

• The basis for technological progress is appropriate capitalization. The prerequisite for this is appropriate investments in information and communication technologies (ICT). The “super depreciation” of investments announced but not yet implemented by the German federal government should therefore be swiftly implemented

3. Preserve decentralized strengths

• Germany’s decentralized structure of economic activity is one of the strengths that must be preserved. To counteract the distance disadvantages of rural areas, digital infrastructure needs to be quickly expanded, particularly in areas where economic activities are concentrated. Regional actors such as the “Mittelstand-4.0” competence centers should in particular draw the attention of small and medium-sized enterprises (SMEs) to the advantages of using data centers and work to dispel any reservations

4. Bring AI on a broad scale

• Artificial intelligence is the technology that can generate a macroeconomic leap in productivity. To maximize its impact, the technology must be applied across a wide range of companies. AI hubs that primarily support SMEs in developing use cases and implementing AI can make an important contribution in this regard

Conclusion

Data centers are more than just technological infrastructure – they are the backbone of the AI revolution in Germany. As companies increasingly rely on AI to drive innovation, productivity, and economic growth, the importance of data centers will only continue to grow. By investing in digital infrastructure, accelerating the development of data centers, and ensuring that AI technologies are accessible to all businesses, Germany can harness the full potential of AI and maintain its position as a global leader in the digital economy.

By fostering a strong and resilient digital infrastructure ecosystem, Germany can not only secure its technological future but also ensure that its businesses, both large and small, remain competitive in an increasingly digital world.

Hanno Kempermann is the Managing Director of the German Economic Institute Consult (IW Consult). He is a graduate economist who was born 1980 in Cologne. He studied economics in Cologne; in 2006-2013, he became the Research Analyst at IW Consult GmbH in Cologne; in 2013-2015 he was the Head of the Munich office, and between 2015-2021, he was Head of Industries and Regions. Since 01.01.2022, he is now Managing Director of IW Consult GmbH.