Struggling through Tough Times: The Rise in Company Bankruptcies
From one difficulty to the next, numerous companies in Germany have been battling for years. The ongoing recession has driven company bankruptcies to levels as high as before the COVID-19 pandemic, making businesses constantly vulnerable. Experts predict a significant surge in bankruptcies this year, with an unsettling forecast for the following year as well.
Coronavirus, soaring energy costs, and elevated interest rates are the primary reasons for companies' financial struggles in Germany. According to Creditreform, a credit agency, the number of bankruptcies could exceed 18,100 this year, marking an increase of approximately 23.5% compared to the previous year.
High energy prices and the interest rate turnaround are putting more and more businesses in Germany under tremendous pressure. One in five jobs in the country could be at risk due to company insolvencies in 2023. Last year, the number was slightly lower, with 175,000 jobs lost due to company bankruptcies.
The construction, retail, and real estate industries have been the hardest hit. Large companies, including Signa Holding, which owns numerous commercial properties in Germany, have been faltering. The retail sector is also dealing with its share of turmoil, as well-known companies like fashion retailer Peek & Cloppenburg have been navigating restructuring challenges.
The construction and real estate sector has been grappling with increased costs and higher interest rates since the beginning of the Russia-Ukraine conflict. With an insolvency rate of 81 bankruptcies per 10,000 companies, the construction sector currently holds the highest insolvency rate in Germany.
Small firms with fewer than ten employees account for over 80% of all bankrupt companies in Germany. However, larger companies, specifically those with an annual turnover exceeding ten million euros, are also encountering more bankruptcies than before. This suggests a complex mix of struggles at various levels of the industry.
Amidster these difficult times, it's essential to remember that the current rise in bankruptcies primarily indicates the normalization of insolvency activity, following the expiration of temporary state aid. No insolvency tsunami is expected in the future, and Germany's economic outlook still predicts a solid foundation for many companies.
Nevertheless, domino effects might ensue when insolvent companies pull other businesses down with them. This is a significant concern, as the labor market remains robust, preventing an influx in consumer bankruptcy figures. However, the potential for rising insolvency figures cannot be overlooked, particularly given the weak economic outlook.
In conclusion, the challenges presented by high energy costs, increased interest rates, and the recession are leading to a surge in company bankruptcies in Germany. Nevertheless, experts assure us that an insolvency tsunami is not imminent, and the majority of companies are still maintaining a solid financial position.
