Number of Company Bankruptcies in Germany Reaches Highest Level in More Than 20 Years

Construction, Retail, and Services Particularly Affected

Steffen Müller, head of IWH insolvency research, assessed the development in clear terms: "Die Lage ist schwierig: Die Insolvenzen treffen die Wirtschaft in der Breite. Viele Branchen und Regionen seien gleichzeitig betroffen." He had previously stated: "Die aktuellen Zahlen zeigen, dass das Insolvenzgeschehen weiterhin auf einem außergewöhnlich hohen Niveau liegt." A turnaround is not in sight for the time being.

The IWH analysis shows that in the second quarter, nearly all major sectors of the economy reached record levels of insolvencies. These included the construction industry, the real estate and housing sector, retail, the hospitality industry, and the services sector. One of the few exceptions was the manufacturing sector, which did not record a new record level.

High Energy Costs and End of State Aid as Drivers

Regional focal points of the wave of bankruptcies in June were in North Rhine-Westphalia and Hesse. The crisis is therefore not concentrated in individual structurally weak regions, but is affecting two of the economically strongest states, which are central locations of the German economy.

Among the causes cited by economists are the expiration of state aid, which, according to calculations by the Centre for European Economic Research (ZEW), had alone kept around 140,000 companies from closing in 2020 and 2021. "Nachdem die staatlichen Hilfen ausgelaufen waren, mussten und müssen sich Unternehmen wieder aus eigener Kraft am Markt behaupten."

Iran War and Ukraine War Intensify the Pressure

In addition, there are significantly higher energy and raw material costs. "Energie ist deutlich teurer geworden. Auch für viele andere Rohstoffe musste mehr Geld bezahlt werden," the analysis states. The war in Ukraine has also disrupted supply chains for German companies, as the researchers emphasize.

An additional burdening factor came in the spring with the Iran war. The geopolitical tensions also left their mark on the financial markets. On Wednesday, "der wiederaufgeflammte militärische Konflikt zwischen den USA und dem Iran die Investoren in Alarmbereitschaft versetzt," as it was stated. On Thursday, faced with the uncertain situation in the Middle East, investors had "kaum aus der Deckung getraut."

At the same time, there are isolated positive signals from economic reporting. German companies' exports rose for the fourth month in a row in May, and industrial firms recently reported rising production figures again. Thomas Gitzel, chief economist of VP Bank, stated: "Für die deutsche Wirtschaft war der Mai ein guter Monat. Die vielerorts befürchtete wirtschaftliche Delle im zweiten Quartal dürfte ausbleiben."

Export Recovery and DAX Stabilization as Counterweights

Analyst Timo Emden sees the markets caught between hope and concern: "Die Kurse pendeln zwischen der Hoffnung auf diplomatische Fortschritte und der Sorge vor einer weiteren Zuspitzung im Iran-Krieg." On the day of the report, the DAX stabilized again after having previously been under pressure.

For the current third quarter, the IWH expects insolvency figures to continue rising compared with the same period of the previous year. The researchers also emphasize structural burdens such as demographic change and high bureaucratic hurdles, which additionally aggravate the situation for companies in Germany.

Methodologically, the IWH points out that the evaluation includes only partnerships and corporations, but not micro-enterprises. This means the statistics differ from other surveys such as Creditreform's, which is based on a broader definition of a company and therefore arrives at higher overall figures.

Overall, the data make clear that the German economy is in a phase of increased strain. Although rising exports and a recovery in industrial production are preventing a sharp downturn, the wave of insolvencies is continuing to spread in the economists' assessment. An end to the wave of bankruptcies is not currently in sight, according to the researchers.

Outlook: IWH Expects Numbers to Continue Rising

The federal government therefore faces the question of how it intends to respond to the worsening situation among small and medium-sized enterprises. Tax relief, faster approval procedures, and targeted aid programs for particularly affected sectors are being discussed. Whether such measures can still reverse the trend in the current year is, in the IWH's view, rather doubtful.

The broad spread across sectors and regions makes the current insolvency cycle one of the most severe since the early 2000s, in the researchers' assessment. At that time, the end of the New Economy boom and a prolonged economic slump had primarily driven bankruptcies upward. Today, geopolitical tensions and structural cost factors are added to the cyclical risks.