July's insolvencies at 10-year high
The German economy is sluggish, and has been for some time. This is now evidently taking a toll on businesses. In July, a study found that as many companies are filing for insolvency as in the past ten years. One sector in particular is being hit hard.
Amidst the economic slowdown, the number of company insolvencies in Germany has risen to its highest level in nearly a decade, according to a study by the Halle Institute for Economic Research (IWH). A total of 1,406 insolvencies of personal and capital companies were registered in July, the IWH reported in its study. This is 20 percent more than in the previous month and 37 percent more than a year ago. The current figure is also 46 percent higher than the July average for the years 2016 to 2019, before the COVID-19 pandemic.
"The significant increase in insolvency numbers affects all sectors," the IWH emphasized. "However, it is particularly pronounced in manufacturing." After 100 insolvent industrial companies in June - which was the average for the past twelve months - the number has now increased to 145. This is a new record since the IWH insolvency trend began recording sector information in January 2020. "The states of Berlin, Hesse, and North Rhine-Westphalia were particularly affected," it said.
According to the IWH analysis, around 10,000 jobs are affected in the largest ten percent of companies that filed for insolvency in July. "Closures of large employers can lead to significant and long-term income and wage losses for the affected employees," the institute said.
Possible brief respite in August
For the coming months, experts expect a mixed picture. "We expect insolvency numbers to decrease slightly in August and then increase again in September," said Steffen Müller, head of the IWH department for structural change and productivity. This means that the number of insolvencies is likely to remain consistently above the pre-COVID-19 pandemic level.
The German economy is currently in a prolonged downturn. While the gross domestic product grew by 0.2 percent in the first quarter, it then decreased by 0.1 percent in the spring due to reduced investment in machinery and buildings. Many experts expect a weak recovery in the second half of the year, as many parts of the economy are complaining about a lack of orders.
The rise in company insolvencies in Germany, as highlighted by the IWH study, is impacting various sectors, with manufacturing being hit hardest. The sluggish German economy, leading to reduced investment and orders, has contributed to the prolonged downturn.
