April's Company Insolvencies in Germany: An Unsettling Uptick
Bankruptcies among businesses saw a moderate rise of 3.3% in April. - Bankruptcy filings experienced a minimal surge of 3.3% in April.
Hey there! Let's dive into the latest economic news, shall we? Recent statistics reveal a concerning 3.3% increase in company insolvencies in April, compared to the previous month. Get ready to roll up your sleeves as we explore the factors behind this growth.
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Before we dig in, remember that insolvency applications usually aren't reflected in the statistics until they're approved by the court, which typically happens around three months later.
Last month's report from the Federal Statistical Office was quite alarming: 2,068 regular insolvencies were recorded in February, a 15.9% jump from the same time last year. The combined claims of creditors towered at approximately €9 billion, a significant difference from the €4.1 billion in 2023. Sectors feeling the pain the most were transport & warehousing, other services, and the hospitality industry.
Volker Treier, the chief analyst at the German Industry and Commerce Chamber (DIHK), succinctly sums up the situation: "Sluggish demand here and abroad, high uncertainties, not least due to US trade policy, and high burdens on the domestic location due to taxes, energy costs, and bureaucracy – all this is eroding the profitability of companies."
The Leibniz Institute for Economic Research Halle (IWH) completed its own insolvency analysis for April. On paper, there were 1,626 insolvencies in this month – a decent 11% increase from March, a 21% surge from April 2024, and even more than in the 2008–2009 financial crisis. Fun fact: the last time more insolvencies were reported in Germany was in July 2005.
One reason for the high number this time around is the "unusually high proportion of small insolvency proceedings." According to IWH expert Steffen Müller, we might expect the number of insolvencies to decrease in the coming months. However, he remains optimistic that Germany will still see more company closures than in 2023.
Like any good story, there's never just one reason for something happening. That's no different when we consider the rise in insolvencies. The DIHK and IWH have identified several contributing factors:
- The post-pandemic economic aftershocks keep shaking things up, resulting in weak growth. Germany, like many Western European countries, is still recovering from the economic disruptions brought about by the COVID-19 pandemic.
- The escalation in energy costs has made companies' toes curl. The climbing energy prices have been a significant financial burden on companies, further exacerbated by supply chain issues and inflation.
- Uncertainty reigns supreme, thanks to geopolitical strife across Europe and beyond. Uncertainty can dampen consumer and business demand, placing added pressure on companies to maintain revenues.
- Some sectors are feeling the brunt of the struggle more than others, such as construction, courier services, and the hospitality industry. Challenges in these sectors include escalating costs, labor shortages, and lower consumer spending.
- Legal and regulatory changes can also impact the number of insolvencies. As temporary protections end and enforcement tightens, more companies may find themselves filing for insolvency.
All these factors combined have resulted in the sharp rise in company insolvencies from March to April in Germany – a reflection of broader economic instability and sectoral challenges. DIHK expert Treier urges the new federal government to take action with a swift and strong response, including regulatory reduction, tax relief, and reduced electricity prices, in order to combat the trend of ever-increasing business closures.
By the way, consumer insolvencies also rose in February, with 6,075 reported – a 4.8% increase from 2024. As always, stay tuned for more updates on the economic landscape!
- Company Insolvency
- Federal Statistical Office
- Year-on-Year Comparison
- IHK
- DIHK
- Volker Treier
- Wiesbaden
- Germany
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[1] "Economic analysis of rising insolvencies in Germany" - DIHK[2] "Insolvency balance for April 2024" - IWH
- The recent surge in company insolvencies in Germany has been attributed to the DIHK and IWH, with the highest number of insolvencies recorded in April 2024, even surpassing the numbers during the 2008–2009 financial crisis.
- The Federal Statistical Office reported an astonishing 2,068 regular insolvencies in February, marking a 15.9% increase from the same time last year, with claims of creditors reaching €9 billion.
- Despite predictions of a potential decrease in the coming months, the Leibniz Institute for Economic Research Halle (IWH) has identified an "unusually high proportion of small insolvency proceedings," contributing to the elevated number of insolvencies in April.
- The rising number of insolvencies can be linked to various factors, including post-pandemic economic aftershocks, escalating energy costs, geopolitical uncertainties, sector-specific struggles, and legal and regulatory changes. The DIHK's Volker Treier has urged the new federal government to take immediate action, proposing regulatory reduction, tax relief, and reduced electricity prices to address the ongoing trend of business closures.