Steady Uptick in Company Insolvencies: A Rude Awakening for the German Economy
Corporate insolvencies on the rise, slowing down economic growth
The casual observer might be lulled into a false sense of relief, but hold on tight - the German economic engine is still sputtering. April saw a mere 3.3% increase in company insolvencies compared to the previous year, marking the second month with a single-digit growth rate. However, don't pop the champagne just yet, as the German Chamber of Industry and Commerce swiftly squashed any notions of imminent relief.
The key to understanding this slow-burning economic crisis lies in the details. The actual insolvency filings are only accounted for in statistics after a decision is made by the court, which usually occurs around three months prior.
Looking back at February's data, the grim reality becomes clear. The local courts reported a whopping 15.9% increase in regular insolvencies compared to the previous year, totaling 2,068 cases. The staggering claims of creditors reached around nine billion euros, up from around 4.1 billion euros in the previous year. Sectors feeling the heat included transport and warehousing, other services, and the hospitality industry.
Volker Treier, the chief analyst of the German Chamber of Industry and Commerce (DIHK), put it bluntly: "The February value is the highest in twelve years." Treier went on to explain that sluggish demand both at home and abroad, sky-high uncertainties fueled by U.S. trade policy, and crushing domestic pressures from taxes, energy costs, and red tape are all eroding the profitability of companies.
Diving deeper into the facts, the global economic outlook for 2024-2026 forecasts a rise in business insolvencies worldwide, with Germany being right in the thick of it. Allianz Research projects a +10% increase in global business insolvencies in 2024, with further rises of +7% in 2025 and +4% in 2026. This gloomy prediction is supported by increased net bond supply and fiscal challenges in Germany, both contributing to the pressure on companies.
Industry giants such as Siemens, Vodafone Germany, and ThyssenKrupp AG have all been feel the pinch with significant job cuts. This grim picture underscores the broader economic stress that major sectors, like industrial and technology, are facing.
On the bright side, there has been some cautious recovery in M&A activity, with stable or slightly increased overall deal volumes in 2024. However, the focus remains on strategic deals and sponsor-led buyouts, suggesting companies are navigating a tricky market environment with tight financing conditions in certain areas.
Smaller or vulnerable companies, particularly mid-sized firms, are feeling the brunt of these pressures, facing liquidity issues and the cost of adapting business models in response to these challenges. In short, the challenges span from economic uncertainty, restructuring, cautious investment environments, and more, ultimately pushing up insolvency risks in the country.
To sum it up, the continued increase in company insolvencies in Germany since summer 2024 is due to a mix of macroeconomic headwinds, weakened demand, ongoing industrial restructuring, and cautious market investment conditions. These pressures are causing pain for mid-sized firms and leading companies alike, and it seems the German economy still has a bumpy road ahead.
- The March insolvency statistics, yet to be announced, may reveal an increase in company insolvencies, as the trend has continued from the previous months.
- The rise in company insolvencies is not just a local issue, but a global concern as Allianz Research predicts a +10% increase in global business insolvencies in 2024.
- Despite the intense pressure on companies, some silver lining is seen in the cautious recovery in M&A activity, with stable or slightly increased overall deal volumes in 2024.
- The risk of insolvency in Germany is not only affecting large corporations but also smaller, mid-sized firms, which are finding it challenging to adapt their business models amidst these economic pressures.
