Corona consequences: Economy catches up on bankruptcies

The hoped-for upturn is not yet evident in the insolvency statistics. The number of corporate bankruptcies continues to rise, after already experiencing a sharp increase last year. Experts see this primarily as a consequence of ongoing structural change and, in some cases, consider the adjustment necessary: ​​"Insolvencies are not uncommon in times of economic upheaval—in fact, they are necessary," explains the Association of Insolvency Administrators in Germany (VID).

Credit agency Creditreform reported 11,900 corporate insolvencies in the first half of the year, 9.4 percent more than in the same period last year. Figures from the Federal Statistical Office point in the same direction. On Friday, the agency reported 2,125 corporate insolvencies for April, 11.5 percent more than a year earlier. A preliminary estimate for June indicates a further 2.5 percent increase. Thus, the trend is weakening – albeit at a high level.

According to Creditreform, there are currently more bankruptcies than at any time in ten years, even more than before the pandemic. According to the Federal Statistical Office, logistics companies accounted for the highest share in April, followed by the construction and hospitality sectors.

For years, this statistic was of little use because the federal government had significantly relaxed the rules for filing for insolvency during the coronavirus crisis. This was complemented by financial aid for many businesses and short-time work. The aim was to prevent the pandemic's state of emergency from leading to a wave of bankruptcies and mass unemployment. As a result, there were particularly few insolvencies during one of the country's most severe economic crises.

After that, however, a lot of things had built up: In 2023 and 2024, the number of insolvencies rose by more than 20 percent each year. The restructuring consultancy Falkensteg sees this as a "normalization toward a rational level." According to the restructuring experts, many companies are now giving up that, under normal circumstances, would have already been on the verge of collapse during the pandemic years: "The coronavirus aid and short-time work during the pandemic in particular diluted the cleansing effect of insolvency," says Falkensteg expert Jonas Eckhardt.

Despite the federal government's ambitious ambitions, Eckhardt does not expect a rapid improvement: "Since insolvencies always occur later, it will take at least until 2026 for the first positive signals to be reflected in the insolvency figures." VID Chairman Christoph Niering also points out that political measures have a delayed effect. "However, their mere announcement can have a stabilizing effect on confidence in the economy." He does not see "a widespread crisis." The high insolvency figures have less to do with the current economic situation than with structural change.

Steffen Müller of the Halle Institute for Economic Research (IWH) shares this view. "For many years, extremely low interest rates have prevented bankruptcies, and during the pandemic, government support measures have helped even companies that were already weak to remain on the market," says the head of IWH's insolvency research. He sees the bankruptcies as "painful but necessary market adjustments and structural adjustments that can create space for sustainable companies."

However, this doesn't make the situation any easier, as the crisis hotspots are in key sectors, making their problems all the more significant. According to an IWH study, most jobs are affected in manufacturing, where companies are generally larger than in the catering or construction sectors. According to the IWH, in June, around 16,000 jobs were affected in the largest 10 percent of insolvent companies alone. "This puts the number of affected employees at the same level as in previous months, but 68 percent higher than the level in June 2024 and about 43 percent higher than the June average for the pre-coronavirus years 2016 to 2019."

This will have lasting effects, warns Patrik-Ludwig Hantzsch, head of Creditreform's economic research. "With the people leaving the companies, we're losing know-how and manufacturing expertise," he said in a podcast with the credit agency. "The employees won't automatically find a job again immediately, as is often suggested." The bankruptcies in the construction industry are also making it difficult to implement the infrastructure projects for which huge sums are currently being made available.

Hantzsch also warns that the number of insolvencies in industry continues to rise faster than in other sectors. Industry remains "under fire," he says, and there is a risk of "the erosion of Germany's engine room."

Experts agree that rapid technological and market change is driving the number of insolvencies. The pandemic's "downtime" has resulted in a particularly high number of ill-equipped companies. Two-thirds of insolvent companies simply lack a functioning business model or a viable organizational structure, according to the Falkensteg study.