Insolvencies Skyrocket: Germany's Worst Insolvency Spike in Two Decades
Record-breaking level of corporate bankruptcies in the past two decades. - Record-breaking number of bankruptcies in the last two decades.
Hey there! Listen up, folks, because this ain't no bedtime story. The infamous German economy, known for its stability, has taken a hard hit. The number of insolvencies among individuals and companies has reached an all-time high in twenty years!
You heard it right - the Leibniz Institute for Economic Research Halle (IWH) has witnessed a whopping 1,626 insolvencies in April this year. That's a staggering 11% increase from the previous month and a jaw-dropping 21% rise compared to the year before. And guess what? Even these numbers outshine the values from the 2008/2009 financial crisis! It's been a long time since more insolvent individuals and companies were recorded in Germany, all the way back to July 2005.
But what's the reason behind this unfortunate surge? Well, the IWH attributes a significant portion of this drama to a higher-than-usual occurrence of smaller insolvency proceedings. Steffen Müller, the head of IWH insolvency research, believes that if these return to their long-term average, we might witness a decrease in insolvencies in the following months.
However, Müller warns that we ain't out of the woods just yet. He predicts that Germany will see more company bankruptcies in the coming days than the previous year.
You may be wonderin' what the IWH does. Well, it collects indicators that foretell the insolvency process by two to three months. It evaluates insolvency announcements monthly and links them to companies' financial data.
Now, let's dive deep into the mess.
Economic instability, geopolitical uncertainties, rising costs, and weak demand have contributed significantly to this slew of insolvencies in Germany. The ongoing economic downturn has hit businesses like a storm, and that isn't entirely unexpected. However, the high energy costs, which escalate operational expenses and reduce profit margins, have been particularly harrowing for businesses.
It gets worse, though. Supply chains, especially those affected by the COVID-19 pandemic and the conflict in Ukraine, have created a plethora of problems for companies. Case in point: HeiterBlick – a company that cited component cost increases and supply chain issues as reasons for its financial troubles.
By 2025, the number of insolvencies in Germany is projected to reach new heights since 2015, with sectors like construction, courier services, and gastronomy being hit the hardest. Sadly, these trends aren't unique to Germany – in 2024, the number of corporate insolvencies in the country rose by an intimidating 22.5% compared to the previous year.
So, folks, while the IWH hasn't specific 2021 figures yet, recent trends suggest that economic instability, rising costs, and weak demand have played a pivotal role in the increase in company bankruptcies in Germany. That's a tough pill to swallow for the German economy, for sure. But remember, it's always darkest before the dawn. Stay strong, and let's hope for better days ahead!
Glossary:
- Insolvencies: Bankruptcy or unable to pay debts
- Germany: Country in central Europe
- Company bankruptcy: Legal declaration that a company is insolvent and cannot pay its debts
- Institute for Economic Research Halle: German research organization focusing on economic policy and industry
- Economic Uncertainty and Crises: Conditions that create instability and fear about future economic conditions
- Rising Energy Prices: Increase in the cost of energy
- Supply Chain Disruptions: Interruptions in the delivery of goods from suppliers to customers
- Weak Demand: Lack of interest or ability to purchase goods or services
[1] https://www.statista.com/statistics/1204440/insolvency-rate-in-selected-european-countries/[2] https://www.ankara-ag.de/fileadmin/user_upload/Presse/2022/Januar_Web/Dharmas-Insidermeldung_2022.pdf[3] https://www.iwh-halle.de/de/presse/aktuell/2022/Hitzewelle_fuer_Insolvenzen[4] https://www.wsj.com/articles/the-heart-of-europes-energy-freeze-winds-down-germany-11624640000[5] https://www.capital.de/wirtschaft/heiterblicks-olenska-why-it-went-bankrupt-22155552
- To address the surge in insolvencies, the Community policy may need to focus on strategies that support financially struggling businesses, such as providing vocational training for employees in impacted sectors.
- The recent spike in insolvencies among German companies indicates an average return of 11% from the previous month and a significant rise of 21% compared to the year before, surpassing the values from the 2008/2009 financial crisis.
- The ongoing economic instability, geopolitical uncertainties, rising energy costs, and weak demand have considerably contributed to the recent insolvencies, causing a high number of company bankruptcies in Germany, particularly in sectors like construction, courier services, and gastronomy.
- Even though the Institute for Economic Research Halle (IWH), Germany’s research organization focusing on economic policy and industry, attributes a significant portion of the insolvencies to smaller insolvency proceedings, they predict more company bankruptcies in the coming days than the previous year.
