German economy hit hard: Manufacturing sector faces record bankruptcies

The German economy has lost momentum, inevitably leading to the collapse of many businesses. According to Deutsche Welle, in July, the number of bankruptcies declared by German companies reached its highest level in a decade. One sector has been particularly hard hit.

According to data from the Halle Institute for Economic Research (IWH), the economic slowdown has contributed to an increase in the number of company bankruptcies in Germany, reaching the highest level in about ten years. In July, 1,406 bankruptcy cases of partnerships and corporations were registered, representing an increase of 20 per cent compared to the previous month and 37 per cent more than the same period in the last year. According to Deutsche Welle, the current rate is also 46 per cent higher than the July average for 2016-2019, the pre-COVID-19 period.

IWH notes that "the significant increase in the number of bankruptcies affects all sectors". Nevertheless, it is most noticeable in the manufacturing sector. In June, the number of bankruptcies in the industry was 100, corresponding to the average of the last 12 months, but it has now risen to 145. This sets a new record since IWH-Insolvenztrend started collecting this data in January 2020. IWH also highlights that "the most affected regions are the states of Berlin, Hesse, and Rhineland-Palatinate".

Analysis by IWH shows that, in the case of 10 percent of the largest companies whose bankruptcy was reported in July, nearly 10,000 jobs are at risk. "The liquidation of large employers can lead to significant and long-lasting losses in income and employee wages," informs the institute from Halle.

Experts predict that the situation will develop unevenly in the coming months. "We expect the number of bankruptcies to decrease slightly in August, only to rise again in September," said Steffen Müller, head of the structural change and productivity department at IWH. This means that the number of bankruptcies is likely to remain at a higher level than before the pandemic.

The German economy is currently stagnant. In the first quarter, the gross domestic product grew by 0.2 per cent, but in the spring, it fell by 0.1 per cent due to reduced investments in fixed assets such as machinery and buildings. Many experts predict a weak recovery in the year's second half, as much of the economy struggles with a lack of orders, reports Deutsche Welle.