Companies in Germany are grappling with financial difficulties, fueled by the lingering effects of the coronavirus, skyrocketing energy prices, and climbing interest rates. Creditreform, a credit agency, predicts a substantial increase in company insolvencies this year, up from the previous year by a quarter. This trend is projected to continue into 2024, with around 20,000 insolvencies, according to Patrik-Ludwig Hantzsch, the Head of Creditreform Economic Research.
The construction sector, in particular, is feeling the brunt of these challenges. With an insolvency rate of 81 bankruptcies per 10,000 companies, it's the most affected sector in Germany. The retail and real estate sectors are also battling difficult times, with well-known companies like Peek & Cloppenburg KG Düsseldorf and the hypermarket chain Mein Real facing turbulence in 2023.
Notably, the real estate and retail investor René Benko-owned Signa Holding, which includes numerous commercial properties in Germany and the department store group Galeria Karstadt Kaufhof, filed for insolvency. This highlights the struggles within these sectors.
While Creditreform forecasts an increase in insolvencies, it does not anticipate a wave or a tsunami of bankruptcies that would significantly harm the economy as a whole. The Chairman of the Professional Association of Insolvency Administrators and Trustees in Germany, Christoph Niering, shares this perspective, suggesting a return to more normal insolvency activity in the future.
Small companies, in particular, are struggling to make ends meet, with over 80% of bankrupt companies across all sectors being small firms with less than ten employees. Larger companies with an annual turnover of over ten million euros are also showing signs of vulnerability, with an estimated increase in insolvencies from 190 to 260 this year.
The current situation is a result of various economic factors. Delayed structural reforms compounded by the pandemic and subsequent state aid have contributed to the rise in insolvencies. By 2022, insolvency figures had surged again, marking the first increase since the 2009 economic crisis.
Consumer bankruptcies have not seen an immediate increase; however, Creditreform expects a rise due to the weakening economic outlook and the deteriorated state of over-indebtedness among many individuals.
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Insights:
- The increase in company insolvencies is primarily a result of the expiry of state aid, the impact of the pandemic, and the normalization of insolvency activity.
- The construction, retail, and real estate sectors are particularly affected by these challenges.
- Delayed structural reforms, coupled with the pandemic and state aid, have contributed to the rise in insolvencies.
- While small companies are most frequently filing for insolvency, larger companies are also experiencing an increase in bankruptcies.
- Consumer bankruptcies are projected to rise due to the weak economic outlook and the worsening state of over-indebtedness among individuals.
