Many German businesses are not putting enough emphasis on innovation, warns the state-owned development bank KfW in a new study.

The number of companies in Germany's Mittelstand - the term for the large group of mid-sized industries specializing in key products - investing in innovation is on the rise, noted the report, which looks at 2017 data.

However, at the same time, it said on Thursday that the number of companies it would consider to be innovative stands at 27 per cent, down from 42 per cent in the 2004-06 period.

Innovation is considered work on new industrial processes or products.

"This is not good news for German business or its international competitiveness. After all, innovation plays a large role in productivity, revenues, returns and employment," said KfW chief economist Joerg Zeuner.

The 2014-16 period saw the number of smaller and mid-sized firms focused on innovation rise to 1 million, an increase of 200,000 compared to the 2013-15 period.

But those efforts generated less revenue, with 32.2 billion euros (39.7 billion dollars) attributable to new innovations in 2016, down from 36.7 billion euros in 2015.

Of the firms listed as non-innovative, 54 per cent said they saw no need to develop new products because of lack of demand. Another 20 per cent said they lacked new ideas at the time.

KfW considers a company to belong to the Mittelstand if its sales do not exceed 500 million euros annually.