Rising Corporate Insolvencies in Germany: A Deep Dive Into the Causes and Implications
Corporate bankruptcies in Germany are surging, with forecasts estimating that around 20,000 companies could be insolvent by the end of 2024. Between January and March 2024 alone, over 5,200 companies filed for bankruptcy, reflecting a significant 25.9 percent increase from the same period last year. According to the Federal Statistical Office (Destatis), creditors' claims from these bankruptcies surged to 11.3 billion euros, compared to 6.7 billion euros during the first quarter of 2023.
Experts attribute this spike in insolvencies to several interlinked factors. The COVID-19 pandemic delivered a significant blow to many businesses, leading to long-standing financial strain. Compounding this, rising energy prices and escalating interest rates have exacerbated the situation, driving more companies into financial turmoil.
According to Dr. Frank Schlein, Managing Director of CRIF Germany, there has been a consistent increase in bankruptcy rates for ten consecutive months, indicating a pronounced wave of insolvencies. The conditions in Germany remain particularly challenging for businesses, with a lack of strong foreign business and minimal revival in domestic demand. Additionally, geopolitical risks and stagnant private consumption further exacerbate the economic difficulties.
Berlin recorded the highest insolvency density, with 28 bankruptcies per 10,000 companies, surpassing the national average of 17. Regions like Hamburg, North Rhine-Westphalia, and Saarland also reported higher than average insolvency rates. This upward trend was especially prominent in Mecklenburg-Western Pomerania, Brandenburg, Saxony, and Rhineland-Palatinate, which all saw significant increases in insolvencies year-over-year.
An analysis by CRIF of nearly 540,000 companies indicated a sharp decline in the payment morale among German businesses. With payment delays averaging 26.9 days—a steep rise from the previous year's 19.2 days—many companies find themselves in precarious financial situations. As liquidity concerns grow, businesses are forced to wait longer for payments, involuntarily becoming lenders to their customers. This can stymie their own growth and operations, disproportionately affecting small and medium-sized enterprises.
- In 2023, Germany witnessed 17,814 company bankruptcies, marking a significant rise but still lower than previous economic crises like the 2009 financial crisis, which saw almost 33,000 bankruptcies. Analysts now project that the 2024 figure will potentially surpass this, with an estimated 20,500 corporate insolvencies.
- Details on various federal states reveal mixed scenarios; while Bavaria, Brandenburg, and Thuringia had the lowest insolvency densities, regions like North Rhine-Westphalia saw the highest absolute company insolvencies. This geographic variation underscores the uneven impact the current economic challenges are having across the country.
