Companies in Germany are grappling with a myriad of challenges, leading to escalating debt issues for numerous businesses. The looming fear of a wave of company insolvencies is not unfounded, considering the surge in bankruptcies observed recently. According to Crif, an information service provider, we can anticipate a significant increase in company bankruptcies this year and the following year, with 17,900 expected in 2023, representing a 22.8% increase from 2022.
Despite this rise, Crif's Managing Director for Germany, Frank Schlein, clarified that we should not label it a 'wave of bankruptcies'. This is due to the impact of previous support programs worth billions, which helped prevent a massive collapse following the pandemic. However, the anticipation of further increases to up to 20,000 cases in 2024 is concerning, although still less than the average of 26,200 insolvencies per year since 1999, compared to the record year of 2003 with 39,320 cases.
The majority of companies in Germany are reportedly in a good financial position, but the increasing number of major insolvencies could create a domino effect, leading to subsequent bankruptcies in various sectors of the economy. Investors should closely watch this trend, especially given that more than 305,000 companies, or 10.1%, currently carry an increased risk of insolvency.
It is essential to note that the increase in company bankruptcies in Germany is not a simple return to normalcy. Economic analyses suggest that ongoing challenges, such as mounting pressures on investment and liquidity, higher financing costs, subdued capital deployment, and reduced global demand, remain significant contributing factors. These factors have led to a prolonged period of elevated corporate distress, with conditions stabilizing but still significantly higher compared to the previous year.
Furthermore, the stress scenarios suggest that German banks could remain profitable through 2026, but certain banks might become unprofitable under severe stress scenarios, especially those with higher exposures to consumer finance or commercial real estate. The number of larger defaults has also increased recently, indicating a potential increase in credit losses.
In conclusion, the trend of company bankruptcies in Germany highlights ongoing economic challenges, stress, and uncertainty. While we cannot categorize it as a simple return to normalcy, it is essential for businesses and investors to stay informed and adjust their strategies accordingly.
