Economic Struggles Taking a Toll on Companies: Bankruptcies Soaring
The ongoing economic hardships, skyrocketing interest rates, and exorbitant energy prices have led to an alarming surge in company bankruptcies this year. As per estimates by the credit agency Creditreform, an estimated 18,100 firms across Germany are expected to file for insolvency by the year's end. This staggering figure represents a 23.5% increase compared to the previous year.
Patrik-Ludwig Hantzsch, the Head of Creditreform Economic Research, shed light on this grim situation at a recent presentation in Frankfurt, attributing the rising number of company collapses to the relentless pressure of high energy prices and the interest rate reversal.
State-by-State Insolvency Ratio
According to Creditreform, the average rate of company insolvencies ended last year with an average of 60 filings for every 10,000 companies in Germany (48 in the previous year). The insolvency ratio varies among states, oscillating between 120 in Bremen and 40 in Thuringia. North Rhine-Westphalia, with a ratio of 77 (62 in the previous year), surpasses the nation's average. Some neighboring states like Hesse, Schleswig-Holstein, Saarland, Hamburg, Berlin, and Bremen itself are also experiencing an increase in company insolvencies.
Anticipated Uptick in Consumer Insolvencies
Although the labor market has remained robust, preventing a substantial rise in consumer bankruptcies, Creditreform anticipates elevated consumer insolvencies amidst the weak economic outlook. In addition, the over-indebtedness situation for many people has significantly worsened, increasing the likelihood of consumer bankruptcies.
Economic Challenges Factoring Into Insolvencies
Various factors, including economic downturn, geopolitical risks, credit quality concerns, real estate market challenges, and inflation, are contributing to the surge in company bankruptcies.
- Economic Downturn: A severe industrial crisis, coupled with a widening skills gap, is exacerbating the corporate bankruptcies, particularly affecting energy-intensive industries and the automotive sector, which have incurred substantial job losses and plant closures.
- Geopolitical Risks: Germany's economic model exhibits increased sensitivity to geopolitical risks, putting a dent in financial stability and dampening the economic outlook. The heightened sensitivity to geopolitical risks raises the chances of successful cyber attacks, further straining operational resilience of banks.
- Credit Quality Concerns: A potential upsurge in banks’ asset quality is a cause for concern, as it could negatively impact forecasts if the deteriorating creditworthiness of small and midsize enterprises (SMEs) in sectors like automotive, machinery, real estate, or energy-intensive sectors further crumbles.
- Real Estate Market Challenges: The German commercial real estate (CRE) market faces a substantial risk of further corrections. Losses may ensue if liquidity issues force market participants to offload large volumes at substantial discounts, potentially spurring increased credit losses across the system.
- Inflation and Economic Uncertainty: The escalating inflation and economic uncertainty are impacting consumer behavior and contributing to a challenging business environment, further reflected in the negative economic sentiment and the weakening business climate reproduced in the Ifo Institute's business climate index.
