Will surge in German business bankruptcies hit growth?
Company insolvencies in Germany are rising sharply. Is this a sign of deeper economic weakness, or just a market correction that could ultimately benefit future
Company 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? How 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 axe To 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.
The BriefWire