German Media: Rising Bankruptcies Signal Red Lights for German Economy?

The number of corporate bankruptcies in Germany continues to rise. Is this a sign of fundamental structural problems, or merely a market shake-up that could ultimately even benefit growth?

How bad is the current state of the German economy? The number of business bankruptcies is often used as an indicator of economic health. According to a study by the Halle Institute for Economic Research (IWH), in June this year, the number of bankruptcies among personen- and kapitalgesellschaften (GmbHs and similar entities) was 80% higher than the average level recorded between 2016 and 2019—the period before the pandemic.

Sole proprietors, freelancers, and small businesses are excluded from this data because their impact on the labor market is relatively limited. In contrast, bankruptcies among personen- and kapitalgesellschaften affect around 90% of jobs impacted by insolvency and account for 95% of the total value of claims at risk.

Steffen Müller, head of bankruptcy research at the Halle Institute for Economic Research, pointed out that the second quarter of 2026 saw the highest number of corporate bankruptcies in Germany in two decades. Given that more and more companies have been falling into insolvency over recent quarters, this outcome comes as no surprise.

For years, the German economy has struggled to gain momentum. A recovery expected this year may only bring about weak growth. Meanwhile, news of large-scale layoffs continues to emerge: Volkswagen announced it might cut 100,000 jobs in the coming years; automotive supplier ZF plans to eliminate 14,000 positions by 2028; Bosch intends to cut over 20,000 jobs in Germany alone by 2030. Clearly, the difficulties extend far beyond the automotive sector.

A study by consulting firm Horváth revealed that over 100,000 jobs were lost in Germany’s industrial sector last year, with another up to 100,000 expected this year—spanning industries such as automotive manufacturing, mechanical engineering, and construction.

Is this a necessary market shake-up, or a symptom of deeper structural issues in economic growth?

The key question remains: is what we're witnessing now a necessary realignment of the market, or rather evidence of underlying structural weaknesses in economic growth?

Corporate bankruptcies can also have positive effects. When inefficient firms exit the market, labor, capital, and technical expertise are freed up and redirected toward more productive sectors—aligning with Joseph Schumpeter’s principle of “creative destruction” and driving sustainable growth.

If unemployed workers can quickly find new jobs elsewhere, this suggests a healthy market adjustment. Indeed, the rise in unemployment has been relatively slow, and job seekers typically manage to secure new positions. However, Müller from the IWH told DW that this trend is largely due to the retirement of the baby boomer generation and the stagnation of immigration within the EU. This implies that labor mobility may not necessarily involve a shift from low-productivity to high-productivity enterprises.

Hopes from New Startups

Nevertheless, Jutta Rüdlin, board member of the German Association of Insolvency Administrators and Trustees (VID), emphasized the importance of monitoring startup numbers alongside bankruptcy statistics. She stated: "Although startups have a higher-than-average failure rate, the number of new startups has still increased compared to last year." According to data from Germany’s Federal Statistical Office, the number of newly established companies rose by over 10% in the first quarter of 2026 compared to the same period last year.

"Over the past years, we have indeed observed a growing number of startups focused on growth," Müller said. "This is good news. Many of these companies are active in artificial intelligence—a clear ray of hope." He believes this signals that Germany is currently undergoing a certain kind of structural transformation.

Multifaceted Causes of Bankruptcy

Meanwhile, it is evident that no single industry has been disproportionately affected. Müller noted: "About a year and a half ago, there were many large-scale bankruptcies in the industrial sector." That situation has since changed. Today's bankruptcy trends span all industries, reflecting deeper structural vulnerabilities.

Nonetheless, the construction and housing sectors have been hit particularly hard—mainly due to fluctuating interest rates. The hospitality industry struggles with rising minimum wages, energy-intensive firms face soaring energy costs, and retailers are grappling with shifting consumer behavior.

Yet Rüdlin adds that causes of bankruptcy are rarely singular. Past experience shows that well-managed companies tend to withstand external shocks better. For firms already facing fundamental challenges—such as outdated business models, delayed management decisions, or failure to adapt to change—events like the Iran conflict often act as catalysts pushing them into insolvency.

Lagging Effects of the Pandemic Are Now Emerging

Another factor indicating ongoing market restructuring is the lingering impact of the pandemic. During the crisis, many companies received financial aid, which now needs to be repaid—including some that might not have survived under normal conditions. Therefore, Rüdlin argues, we must still consider the delayed effects stemming from the pandemic era. In her view, today’s situation reflects a combination of market cleansing and structural weaknesses.

IWH researcher Müller holds a more pessimistic outlook. He stated: "I believe this is not just a market shake-up—it’s about the future direction of the German economy." He mentioned that bankruptcy levels have reached a "red alert zone." "While we haven’t seen widespread chain reactions or banking crises yet, we are clearly experiencing a major structural transformation."

Source: DW

Original article: toutiao.com/article/1871346365966339/

Disclaimer: The views expressed in this article are those of the author(s).