“Economic crisis drags Berlin into the abyss”: This is how sharply company bankruptcies rose last year

After several years of stability, Berlin's economic recovery has stalled. The long-held image of a rapidly growing service metropolis that masks its weaknesses in industrial production has suffered significant cracks. The German economic crisis is now also affecting the capital.

Critics have long accused the conservative-red coalition in Berlin of whitewashing the situation and are demanding a realistic look at reality. One of them is Alexander King, head of the BSW (Federal Social Welfare Office) in Berlin and its only representative in the state parliament. In an interview with the Berliner Zeitung, King said: "It's time to wake up! The German economic crisis is dragging Berlin into the abyss. Berlin is not an island."

Berlin economy: Number of company insolvencies rising rapidly

The politician is referring to figures he himself obtained from the Senate Department for Economic Affairs. These figures concern corporate insolvencies, an indicator of the economic situation.

The numbers are clear, and so is the trend. Last year, there were 2,092 corporate insolvencies in Berlin. That was 27 percent more than the previous year, 67 percent more than in 2022, and 53 percent more than the average of the pre-coronavirus years. At least 11,000 employees were affected.

According to the responses from the Senate Department for Economic Affairs, the negative trend is pervasive across all sectors and size categories. In addition to retail and construction, the catering and professional services sectors are particularly affected.

For BSW's King, the rise in insolvency means one thing above all: "The German economic crisis has fully arrived in Berlin. The rapid increase in corporate insolvencies can no longer be ignored!"

The politician is thus taking direct aim at Franziska Giffey (SPD), who, in her role as Senator for Economic Affairs, often portrays Berlin's situation in a particularly positive light. Although Alexander King is the only BSW politician in parliament, he is not alone in his view of Senator Giffey. In the recent plenary debate, Green Party MP Christoph Wapler coined the image of Franziska Giffey as the "Sun Queen," traveling around Dubai, Paris, New York, or elsewhere in the world and only wanting to deliver good news. However, he claimed that in reality, she is a "queen without a country," because Berlin's figures, data, and facts are not good.

Giffey defended herself. She would not allow herself to be "defamed as a Sun Queen," she told the Green politician. "We are the ones who don't just do things like that." The Senate stands for international cooperation; it's not for nothing that Berlin is attractive to companies and investors from all over the world.

Berlin economy: Not all figures are bad

In fact, Giffey was also able to point to some key figures: Berlin's economy had grown for the twelfth year in a row and, as it has for many years, remains among the six federal states with the strongest economic growth, she said. And to really make it sound good, the former Governing Mayor also had a few billion-dollar figures at hand: Last year, an investment volume of 1.1 billion euros flowed in, almost as much as the year before.

And when it comes to gross domestic product—the value of goods and services produced locally—Berlin still performs quite well by comparison. According to the Office for Statistics, Berlin's GDP last year amounted to approximately 207.1 billion euros . This represents an increase of 0.8 percent compared to the previous year—the twelfth consecutive increase.

Viewed objectively, an increase of 0.8 percent is still a relatively small figure, especially considering forecasts that predicted growth of two percent or more in some truly strong years. Nevertheless, Berlin is among the top six German states and, as has been the case for years, significantly exceeds the German gross domestic product, which declined by 0.2 percent last year.

As is well known, the entire country is in recession. This is a consequence of the coronavirus pandemic, the uncertainties surrounding the Ukraine war, and the simultaneous start of a widespread shift away from coal, oil, and gas toward renewables such as wind, solar, and hydropower—including skyrocketing energy prices.

The labor market data also seems to fit this overall pessimistic outlook. The so-called spring recovery in the German labor market has been extremely weak this year, as the Federal Employment Agency in Nuremberg announced at the end of last week. After already showing slight improvement in March and April, the number of unemployed fell by just 12,000 to 2.919 million people in May compared to April. This is 197,000 more than a year ago. The unemployment rate fell by 0.1 points to 6.2 percent.

"The spring recovery, which has now ended, was weak overall," said Andrea Nahles, Chair of the Federal Employment Agency. "The labor market is not getting the tailwind it needs to reverse the trend. Therefore, we expect unemployment figures to continue to rise during the summer," Nahles said.

Berlin has almost 220,000 unemployed – that is more than one in ten

This can't bode well for Berlin. There are currently 217,500 registered unemployed in the capital. Even the governing coalition considers the rate of 10.3 percent "far too high." Every effort must be made to reduce it.

But how? The government of a federal state like Berlin has relatively little influence on the economic policy framework. Even BSW politician King agrees. Nevertheless, the Senate is "guilty if it continues to ignore the problems," King emphasizes. It must take countermeasures itself where possible, for example, when it comes to reducing bureaucracy in Berlin's public procurement law or improving training and strengthening collective bargaining agreements. Furthermore, King says, "the Senate must intervene at the federal level where necessary, especially on the issue of energy costs."

Berlin Chamber of Commerce and Industry: “The economic climate continues to cool down”

In fact, Economics Senator Giffey also says that Berlin cannot completely decouple itself from the overall economic climate. To stay in meteorological terms, a look at a recent survey conducted by the Berlin Chamber of Industry and Commerce (IHK) among its members helps. The result: "The economic climate continues to cool."

According to the Chamber of Industry and Commerce, the general conditions have long been the greatest business risk in the metropolitan region. Neither the spring season nor the economic policy plans of the new federal government have been able to stimulate the capital's economy so far, the survey found.

Rather, Berlin companies rated the current business situation as worse than at the beginning of the year. For the Chamber of Industry and Commerce, this means that the economic weakness has developed into a structural weakness. Reducing bureaucracy and accelerating approval procedures are therefore essential. Debates about further financial burdens on companies are also damaging the economy and thus the location and must therefore be stopped, the Chamber of Industry and Commerce concluded.

For Manja Schreiner, Berlin's transport senator for the CDU until a year ago and, following a plagiarism scandal, managing director of the Berlin Chamber of Industry and Commerce, "there is no improvement in sight." Freed from any political responsibility, Schreiner says: To return the economy to a path of sustainable growth, competitive framework conditions are needed above all. For Berlin, this means reducing bureaucratic burdens, faster, digital approval procedures – "and, above all, no additional financial burdens, so as not to further stifle the last weak growth."

This, in turn, is a rather minor dig at Schreiner's former colleague in the Senate, Cansel Kiziltepe. The SPD labor senator still adheres to the goal of a training place levy; a first draft from her department is complete and has been submitted to the other Senate administrations for comment.

The levy would impose a penalty on companies that don't offer enough training positions. The Chamber of Industry and Commerce, the Berlin-Brandenburg business associations, and the CDU are vehemently opposing the levy. Given the overall economic situation, there is less and less evidence that it will be implemented under the CDU/CSU coalition, even though it is enshrined in the coalition agreement.