Insolvencies on the rise in Germany amid economic downturn

The number of corporate insolvencies in Germany rose significantly in July, with almost a quarter more filings by companies than in the same month of the previous year, the Federal Statistical Office announced on Friday (11 August).

The number of corporate insolvencies in Germany was 23.8% higher in July 2023 than in the same month in 2022. Insolvencies have been consistently on the rise since August 2022.

Furthermore, the number of larger businesses that announced their closure in the first half of 2023 has also increased by 12.4% compared to the previous years.

The surge in insolvencies is only the latest of many indicators that the condition of the German economy is looking increasingly grim. According to the International Monetary Fund (IMF), Germany is the only major economy where GDP is expected to shrink in 2023, while inflation remains high at 6.2%.

On Monday, Germany’s Federal Office of Statistics announced that industry production has plummetted by 1.5% in June compared to May, further sparking worries among analysts on the condition of the German economy. 

Observers have already drawn parallels to the early 2000s when the country was referred to as the “sick man of Europe” due to its sluggish economic performance.

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“If the government does not take decisive action, Germany is likely to remain at the bottom of the growth table in the euro area,” Ralph Solveen, an economist at Commerzbank, told Reuters.

Germany has been hit especially hard by the war in Ukraine due to its high dependency on Russian energy imports. However, there are also structural reasons for its economic downturn, especially its over-reliance on exports, the lack of investments and the shortage of labour. 

The German government, however, has to signal confidence in the German economy and downplay fears of a looming economic crisis, with economy minister Robert Habeck betting on private investments to save the day. 

“Currently, about two dozen companies are planning major investments in Germany, with a total investment volume of around €80 billion,” he told Funke Media Group in an interview on Tuesday. 

However, Germany is not the only EU country currently struggling with insolvencies. In France, the number of business failures jumped 35% in this year’s second quarter compared to the same period last year, putting 55,000 jobs at risk of disappearing.

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