Economic Slump - Slight Decrease in German Insolvencies but increasing concern
The slight dip in business bankruptcies among German corporations in November was reported by Destatis. Despite a 18.8% increase compared to November 2021, this decrease was a relief after the 22.4% surge in October. The uptick in insolvencies has been consistent since June, with double-digit growth rates.
Experts view the current situation as normalization following the aid provided to companies during the coronavirus and energy crises. The wave of insolvencies, however, remains above the index value of the 2015 statistics. Traditionally regarded as a bellwether town for bankruptcy cases, Wiesbaden still saw a 24.7% rise in insolvency applications in the first nine months of the year.
Creditors lodged insolvency claims amounting to 21.1 billion euros during the period, a stark contrast to the 10.8 billion euros recorded in the same period last year. The city's courts recorded 13,270 insolvency applications for three quarters of the year, a 24.7% increase compared to the previous year.
Insights into the Increasing Insolvencies
The increase in corporate insolvencies, despite the slight decrease in November, is linked to several issues:
- Rising Insolvencies: The number of German corporate insolvencies reached 14,590 in 2024, indicating a 16.7% annual increase, the highest since the financial crisis. Sectors like construction and industrial manufacturing have been severely impacted.
- Economic Downturn: The German economy is experiencing a downturn, leading to higher interest rates and reduced property valuations, causing developer defaults and inflating non-performing commercial real estate loans.
- CRE Sector Crisis: German commercial property prices fell by 4.7% during the third quarter of 2024, exacerbating the CRE sector crisis. Additionally, elevated interest rates and high inflation pressures are deterring demand, resulting in insolvencies.
- Regulatory and Market Factors: The delays in implementing the EU Credit Servicer Directive and market adjustments are accelerating the clearance of unsustainable firms. The low interest rates and pandemic subsidies concealed insolvencies for years, but now, the required clean-up is underway.
- Construction Industry Challenges: The construction sector is expected to shrink due to reductions in demand, high inflation, and rising material costs, leading to a significant increase in insolvency applications.
While November's statistics reveal a slight decline, the overall trend of increasing corporate insolvencies remains alarming, with rising claims and persisting headwinds in the CRE sector and construction industry.
Source:
