Crisis in German Economy: Corporate Defaults Soar to Decade High
Skyrocketing bankruptcy rates trigger alarm in Germany, nearing critical point.
Germany's economic woes are evident as the default rate of companies climbs to levels not seen since the 2008 global financial crisis. According to Creditreform Rating, the default rate reached 1.78% in 2024 and is expected to surpass 2% in 2025, a concerning trend.
Creditreform Rating's "Default Study" indicates that a default occurs when a company or self-employed individual becomes insolvent or is likely to fail to meet their payment obligations. The root cause of this increase is the struggling economy, with issues like investment weakness, structural problems in industry, and external economic burdens like U.S. tariffs being key factors, notes Benjamin Mohr, a member of Creditreform Rating's management board.
However, economists anticipate that economic growth in Germany will be minimal this year, but they expect defaults to persist rather than decrease. The default rate is projected to continue rising for the time being as short-term stabilization effects, such as declining inflation or the end of interest rate hikes, are not yet sufficient to mitigate increasing default risks.
Struggling Small and Young Businesses
Smaller companies, particularly those with an annual turnover of between 500,000 and 2 million euros, are bearing the brunt of this economic hardship, with a default rate of almost 2%. In contrast, large companies with an annual turnover of at least 250 million euros have a default rate of just 0.4%.
Young companies, those in business for two to five years, are especially at risk, with a default rate of 3.66%. Established companies that have been operating for more than ten years fare slightly better, with a default rate of over 1%.
Affected Sectors
The transport and logistics sector carries the highest default rate, at 3.37%, followed closely by the construction industry with 2.30%. However, the basic chemicals sector has the lowest default rate, below 1%.
Several sectors are particularly vulnerable to rising default risks, including the chemicals, packaging, and environmental services (CP&ES), media and entertainment, telecommunications, and utilities sectors. These industries face both cyclical and structural challenges, making them overrepresented among risky credits and accounting for a significant share of total debt in these categories.
This economic uncertainty, combined with higher financing costs, persistent operational and liquidity challenges, and the need for continual adaptation in business models and operational strategies, puts pressure on many companies. While the banking sector maintains capital buffers to absorb potential losses, the pressure on lower-rated and highly leveraged companies remains substantial.
(Note: The insights above provide additional context and explanations for the factors contributing to the rise in corporate defaults in Germany and affected sectors. These insights were not included in the original base article.)
Reference(s):- ntv.de- mbo
Tags: Economic Cycle, Insolvency, Economic Crisis
- The rising default rates in Germany might necessitate a review of both community policy and employment policy, as small and young businesses, particularly those in sectors like chemicals, packaging, and environmental services, are disproportionately affected.
- As the financial health of companies deteriorates due to the economic crisis, businesses may find it challenging to secure funding, since the increased default rates could potentially lead to higher financing costs.
