Sharp Increase in Bankruptcies Triggers Alarms in Germany
In the year 2024, Germany witnessed a significant increase in insolvencies, with the number of regular insolvencies climbing by 16.8% compared to the previous year, according to Destatis. This trend was particularly evident in October 2024, when consumer insolvencies rose by 10.8%, reaching 6,237 cases.
The local courts reported 2,012 company insolvencies in October 2024, marking a 35.9% increase compared to the same month in the previous year. This surge in insolvencies has led to record-breaking levels of creditors' claims, with approximately 3.8 billion euros owed in October 2024, more than double the amount in the previous year (1.6 billion euros).
The transport sector has been severely affected, with 11.5 cases of insolvencies per 10,000 companies in October 2024. The construction industry and the hospitality industry also reported high insolvency rates, with 8.9 and 7.9 cases per 10,000 companies, respectively.
The significant increase in insolvencies can be attributed to several key factors. Prolonged recessionary pressures, high energy costs, overregulation, tax burdens, and shrinking consumer spending have collectively strained both businesses and individuals financially.
Economic recession and stagnation have eroded payment behavior quality and weakened business conditions across many sectors, including transport. High energy prices have raised operational expenses, squeezing profitability in energy-intensive sectors like transport. Overregulation and increased taxes have further reduced competitiveness and increased costs, prompting bankruptcies or relocations abroad.
Sector-specific strain is also a significant factor. The transport sector is affected due to rising costs and reduced demand. The hospitality industry, too, reports steep revenue declines and rising insolvencies, with the full 19% VAT reinstated on food and beverages since early 2024 worsening the situation for restaurants and similar businesses.
Private individuals are also facing financial difficulties due to inflation, decreased real incomes, and higher living costs, leading to increased insolvency cases. The rise in consumer insolvencies indicates ongoing financial strain on private households due to rising living costs, high energy prices, and economic uncertainties.
It's important to note that insolvency applications are often filed months before statistical recording, which may make the actual situation appear even more dire. The turn in interest rates is also affecting the liquidity of many companies, as loans have become more expensive.
The increase in insolvencies is also causing concern for the banking sector, as rising insolvencies increase non-performing loans, stressing banking sector asset quality in Germany. High energy prices, increased material costs, and the economic aftereffects of the pandemic are contributing to the increase in insolvencies.
In conclusion, the interplay of macroeconomic stagnation, cost pressures (notably energy and taxation), and sectoral downturns (including transport and hospitality) explains the rising insolvency trend in 2024 Germany for both businesses and private individuals.
What is the impact of this financial strain on the business sector, specifically for the banking industry?Is there any plan to alleviate the pressure on businesses and private individuals, given the overwhelming evidence of financial problems in the mentioned sectors?
