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Wrede07/22/2026July 22, 2026Company insolvencies in Germany are rising sharply. Is this a sign of deeper economic
weakness, or just a market correction that could ultimately benefit future growth?https://p.dw.com/p/5HRBTThe number of
corporate insolvencies in Germany is at its highest level in two decades. Is it structural weakness or a market
correction?Image: Thomas Koehler/photothek/picture allianceAdvertisementHow bad are Germany's economic problems? One
commonly used indicator is the number of company insolvencies and recent figures have produced worrying headlines.
According to a study by the Halle Institute for Economic Research (IWH), the insolvency rate among partnerships and
corporations in Germany was 80% higher in June than in an average June between 2016 and 2019, the period before the
COVID-19 pandemic. Sole proprietors, freelancers and very small businesses were not included in these figures because
they are considered less relevant to the overall labor market. Partnerships and corporations account for about 90% of
jobs affected by insolvencies and 95% of the claims involved. The number of company bankruptcies in the second quarter
of 2026 reached its highest level in 20 years, according to Steffen Müller, head of insolvency research at IWH.
This wasn't much of a surprise, since increasing numbers of firms have been going bankrupt for several
quarters now. Industrial job losses on the rise in Germany Germany's economy has been struggling for years, and the
recovery that had been expected for this year is now likely to result in only weak growth. This fits with announcements
from major companies about significant job cuts. Volkswagen has reportedly indicated that up to 100,000 jobs could
disappear worldwide over the coming years. Auto supplier ZF plans to eliminate 14,000 positions by 2028.VW is bringing
out the axeTo view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5
video Bosch also intends to cut more than 20,000 jobs in Germany alone by 2030. But the difficulties are clearly not
limited to the automotive industry. After more than 100,000 industrial jobs were lost last year, a further 100,000
positions could be cut in industry during 2026, according to a study by consulting firm Horvath. The reductions are
expected not only in automotive manufacturing, but also in mechanical engineering and construction. A market correction
or structural weakness? The key question is whether Germany is experiencing a necessary market correction or a deeper
structural weakness in its economy. Insolvencies can have positive effects, too. When unproductive companies leave the
market, workers, capital, and expertise become available for more productive sectors. This can promote economic growth
through the process that economist Joseph Schumpeter called "creative destruction." If people who lose their jobs
because of insolvencies can quickly find new employment elsewhere, it would suggest a healthy market adjustment rather
than economic decline. And in fact, unemployment in Germany has only been rising slowly. Most people who lose their jobs
are able to find new positions. However, Müller notes that this is partly because many members of the baby-boom
generation are now retiring and immigration from within the EU has slowed. As a result, workers are not necessarily
moving from less productive companies to more productive ones. Growing number of startups provides some hope It is
important to look not only at insolvencies but also at the number of newly founded businesses, according to Jutta
Rüdlin, a board member of the German Association of Insolvency Administrators and Trustees (VID). "Young companies fail
more often than average, and there has been an increase in the number of startups compared with the previous year," said
Rüdlin. According to the German Federal Statistical Office (Destatis), over 10% more businesses were founded in the
first quarter of 2026 than in the same period a year earlier. "We've actually seen an increase in growth-oriented
startups for many years," said Müller. "That is good news. Many of them are active in the field of artificial
intelligence, which gives reason for optimism." In his view, this suggests that Germany is currently undergoing a
structural transformation. The causes behind insolvencies are diverse On the other hand, no single sector appears to be
bearing the brunt of the problem. "About a year and a half ago, there were many large insolvencies in manufacturing,"
said Müller. But this is no longer the case. This time, the trend is affecting almost all industries, which points more
toward a structural weakness in the economy.Rising interest rates and a sluggish economy are especially weighing on the
German construction industryImage: Florian Wiegand/Eibner-Pressefoto/picture alliance Construction and housing
development have been hit particularly hard by higher interest rates. Restaurants are struggling with rising minimum
wages, energy-intensive industries with increased energy costs, and retailers with changing consumer spending habits.
Rüdlin emphasizes that insolvencies usually do not have one single cause. In the past, healthy companies have generally
proven resilient to external shocks. Major events like the conflict involving the US and Iran tend to act as catalysts
for businesses that were already facing fundamental problems, such as outdated business models, delayed management
decisions, or a failure to adapt to changing conditions. The delayed effects of the COVID-19 pandemic Another factor
supporting the market-correction argument is the lingering effect of measures introduced during the COVID-19 pandemic.
Many companies received financial support at that time and must now repay it. Some of these businesses might not have
survived even under normal market conditions at the time. Jutta Rüdlin therefore believes that delayed effects from the
COVID-19 era are still playing a role in company insolvencies. In her view, market correction and structural weakness
are overlapping phenomena. IWH researcher Steffen Müller takes a somewhat more drastic view of the situation. "I think
this is more than just a market correction. The real question is what direction the German economy will take in the
future," he said, describing insolvency levels as being in the danger zone. "We are not yet seeing a domino effect in
which one company's problems spread to other businesses or banks. But we are in the middle of a major structural
transformation." This article was originally written and published in German. Send us your feedbackYour
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