Bankruptcies reach a new record: the wave of bankruptcies continues, but there is also a “ray of hope on the horizon”

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The IWH in Halle recently announced that never before have there been so many company bankruptcies in one month. Figures from federal statisticians also show that the feared wave of bankruptcies is already occurring. However, there are also rays of hope, especially for employees of the affected companies.

Three bankruptcies in three and a half years and the Kaufhof Gallery is still alive, just barely. According to media reports, a consortium formed by the American investment company NRDC and the German businessman Bernd Geetz wants to take over the famous bankrupt vulture with its 12,800 employees.

But it remains questionable whether this is really salvation. Carsten Kortum, a retail trade expert at the Cooperative State University of Baden-Württemberg in Heilbronn, told the newspaper “Spiegel” that he did not see how the new owners would change things at the department store chain. “Two years. So the fourth bankruptcy is here.”

More bankruptcies than ever

Kaufhof always has new opportunities, but many other companies that receive less media attention do not. Currently, more and more companies are falling into bankruptcy. This is demonstrated by the latest insolvency statistics from the Halle Institute for Economic Research (IWH). According to the researchers, there were 1,297 partnership and corporation insolvencies in March than at any other time since data collection began in 2016.

According to the IWH, this figure is nine percent higher than the record value in February. In addition, the new record exceeds that of March of the previous year by 35 percent and the average of the years before the coronavirus, 2016 to 2019, by around 30 percent.

“The current spike in insolvencies reflects a significant increase in costs, particularly the sharp rise in corporate lending rates. This is further reinforced by the recovery effects of the coronavirus pandemic, in which numerous weak companies were kept alive thanks to government aid,” IWH economist Steffen Müller, professor at the University of Magdeburg.

After years of calm, the wave of bankruptcies is already in full swing

More bankruptcies usually mean more lost jobs. According to economic researchers, the number of jobs lost due to major bankruptcies provides insight into this. According to IWH, around 11,000 jobs were affected in March by the insolvency of ten per cent of the largest companies, a whopping 42 per cent more than in an average March before the coronavirus pandemic.

The long-feared wave of bankruptcies is already underway. The rapid indicator of the Federal Statistical Office confirms this impression. It was quoted at 94.2 points in February, the highest level since March 2021. According to statisticians, there were 18.1 percent more bankruptcies in February than in the same month last year.

This continues the trend of 2023. According to the final results, statisticians recorded 17,814 company insolvencies last year, 22.1 percent more than in 2022. In fact, this was 5.0 percent less than in the year prior to the coronavirus, 2019. “In historical comparison, the number of companies insolvencies were very low. In 2009, during the financial and economic crisis, the number of company bankruptcies was much higher: 32,687 cases,” the statisticians point out.

There were fewer bankruptcies in 2020, but more jobs were affected

Given this, how should the new IWH survey record be classified? “In 2021 and 2022, both the number of insolvencies and the number of affected jobs decreased before both indicators increased significantly again in 2023,” says IWH economist Müller. Now the IWH records another significant increase for the first quarter of 2024, also in the number of affected jobs, says Müller. You can see “a 30 percent increase in affected jobs compared to the first quarter of 2020.”

At that time the number of bankruptcies was lower in absolute terms. But: “Despite a comparatively low insolvency rate in 2020, as a result of a series of major bankruptcies in the middle of the year, the economy was hit harder by insolvencies than at any time since the 2009 financial crisis.”

This is also demonstrated by a look at the last months of the first year of Corona. In July 2020, for example, according to IWH data, there were 865 bankruptcies, more than 400 fewer than in March 2024. At that time, the top ten percent of bankruptcies affected more than four times as many jobs as last time, with more than 45,000 jobs.

Despite the new record, there are also positive points

What's more: there are bright spots. Müller expects that in April the insolvency figures will be higher again. “However, in the first indicators collected by the IWH there is a ray of hope,” says Müller. “After the January peaks, there was another drop in March. This fuels the hope that the number of insolvencies may decrease slightly again from May. However, they will remain above pre-coronavirus levels for many months.”

Of course, bankruptcy is always painful for everyone involved: companies, employees, creditors. However, for the economy to be competitive in the long term, “business models that are no longer viable must leave the market and thus create space for new things.”

Müller also reminds us that in many places there is a lack of workers. “This shows that employees are desperately needed in high-performing companies. “Therefore, the risk of unemployment and long-term loss of income after an employer goes bankrupt is currently limited,” an assessment that should give hope especially to employees of faltering corporations like Galeria Kaufhof.

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