Artificially kept alive
Corona aid leads to a wave of insolvencies in March
April 10, 2024, 10:19 a.m
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The lamentation of German companies is great, but so is the number of bankruptcies, a study shows. This is also due to the Corona aid that was paid for a long time, which supported companies that would not have survived in normal everyday life. However, the industries that are currently expressing the loudest criticism are not necessarily affected.
The number of bankruptcies reached new highs in the first three months of the year. This is the conclusion reached by the Halle Institute for Economic Research (IWH) in its insolvency trend. It is available to the “Handelsblatt”. 1,297 companies in Germany had to file for bankruptcy in March. Accordingly, since 2016, when the survey began, there have never been as many bankruptcies among partnerships and corporations as there are now. Companies in Germany have thus exceeded the already high value in February by nine percent. In the previous month, 1,193 companies had to file for bankruptcy.
The result is also “35 percent higher than in March 2023 and 30 percent above the March average for the years 2016 to 2019, i.e. before the corona pandemic,” says the insolvency trend. Only around 20 years ago, when the IWH did not yet collect the data, were there significantly higher values.
Corona aid kept people alive artificially
There were 1,297 bankruptcies in March. In the researchers’ eyes, the main reasons are the increased costs, including due to higher interest rates, higher wage costs and energy costs. “Many business models were based on the assumption of low interest rates.” The calculation has no longer worked since the increase in 2022, summarized IWH insolvency researcher Steffen Müller. In addition, companies are increasingly lacking skilled workers.
But a large number of bankruptcies are seen as a result of the corona pandemic. “The Corona aid was primarily used to keep unproductive companies alive, which can no longer make it in a much more difficult environment,” said IWH researcher Müller. “Part of the current high number of insolvencies can be explained by a catching-up wave of Corona insolvencies.” There were comparatively few bankruptcies during the pandemic. One reason for this was the numerous aid from the federal government. In addition, insolvency law was temporarily weakened.
The real estate industry is suffering enormously
Most bankruptcies hit the real estate and construction sectors. According to IWH, many property developers have gone bankrupt. Compared to 2020, insolvencies in the real estate and housing sector have more than doubled (plus 148 percent). On the one hand, demand collapsed because the trend towards home offices reduced demand for office space. In addition, the higher interest rates confused the calculations of property buyers. In the construction industry, the number of bankruptcies rose from 353 in the first quarter of 2020 to 510 in the first quarter of 2024.
In the industry, researchers only registered a minimal increase of five percent to 339 bankruptcies. In the transport and logistics sector, company bankruptcies actually fell. There were eight percent fewer insolvencies there compared to the first quarter of 2020. “Breakdown shows that sectors such as the transport sector, but also industry, are nowhere near as affected by insolvencies as would be expected based on the complaints from the sectors,” said Müller. For example, the heads of numerous business associations complained about their situation and the lack of awareness of this by politicians, especially Federal Chancellor Olaf Scholz.
According to the IWH, around 11,000 employees were affected in the ten percent of the largest insolvent companies in March. Accordingly, the number of affected employees is at the level of February, “but about 42 percent higher than in an average March before the corona pandemic.” However, due to the shortage of skilled workers, laid-off employees would quickly find work again. Therefore, the risk of remaining unemployed or earning less income in the long term after an employer goes bankrupt is “currently limited”.
In addition, the situation would generally improve in the coming months, according to the experts. The IWH researchers look at pre-insolvency court decisions as an early indicator. “We will register a lot of bankruptcies again in April,” predicts Müller. However, their number is likely to fall in May or June at the latest. On the one hand, it is to be expected that the number of corona insolvencies that will be made up will decrease. On the other hand, the economic situation in Germany is slowly beginning to recover.