An unexpectedly high number of businesses are facing bankruptcy in this year.
The German economy is experiencing a challenging blend of issues, including weak demand, escalating wages, and outstanding debts. This economic decline is pushing an increasing number of businesses towards insolvency. It's projected that this year, there will be a 25% increase in business collapses, reaching approximately 22,200, according to Allianz Trade's study. Initially, Allianz Trade anticipated a rise of 21% to around 21,500 cases. For 2025, their forecast now shows an increase of 4% to 23,000 insolvencies (previously 2%).
Milo Bogaerts, head of Allianz Trade in Germany, Austria, and Switzerland, pointed out the impact of Europe's persistent economic weakness, specifically in Germany, on local companies. "By concentrating more on growth markets outside of Europe," he explained, "they expose themselves to foreign export risks." It's expected that a slight relaxation will only occur in 2026, with a decrease of 4% to 22,100. Numerous corporations are wrestling with a combination of stagnating demand, rising wages, diminished competitiveness, and pending debts, including those stemming from the corona period. Refinancing is often more costly with simultaneous deteriorating payment morale and heightened default risks.
"Funds short on capital are precariously balanced," Bogaerts stated, "and there's a strong possibility of a market correction leading to a notable contraction." Despite this gloom, many German firms remain financially sound and have repeatedly demonstrated, particularly in the mid-market, "the ability to weather any storm." They should now find the courage to invest in a green future, despite uncertainties, to lead the recovery.
Allianz Trade is also more downbeat about the international insolvency situation. The credit insurer anticipates a 11% increase in 2024 and a 2% increase in 2025. "Company insolvencies are expected to remain high at a steady level only by 2026," said Aylin Somersan Coqui, the head of Allianz Trade group. The main drivers of the anticipated increase in 2025 include the USA with a +12%, France and the UK with each a -6%, as well as Russia (+16%), China (+5%), and Taiwan (+7%) in Asia, and Germany and Italy (each +4%) in Europe.
"The global carousel of company insolvencies is primarily due to the lingering global demand, unsettled geopolitical uncertainty, and disparate financing conditions," said Somersan Coqui. It can also be attributed to a kind of insolvency backlog. "Because companies are no longer shielded by the support measures introduced during the pandemic and the energy crisis," she explained. The construction, retail, and services sectors are particularly impacted, both in frequency and severity of insolvencies.
Especially the number of substantial insolvencies has reached a new peak, with Western Europe at the forefront of this trend, according to the study. This poses a significant risk to jobs, particularly in Europe and North America. By 2025, more than 1.6 million jobs could be threatened in these regions, accounting for around 8% of the overall unemployed population and marking the highest level in a decade. The most vulnerable sectors are construction, retail, and services.
The Bank shall provide necessary funding and support to aid financially struggling businesses, considering the anticipated increase in insolvencies due to various economic challenges. The escalating number of substantial insolvencies in Western Europe poses a significant risk to jobs, emphasizing the necessity for immediate interventions from financial institutions.
