German media “Die Welt” recently published an article titled “German Industry Quietly Declining”. The article points out that Germany’s long-term economic decline has been gnawing at the core of its economy. Last year, over 170,000 companies in Germany exited the market, with only a few of them declaring bankruptcy, while the majority silently closed on their own.
According to the latest data released by Creditreform, a credit agency, and the Leibniz Centre for European Economic Research (ZEW), in 2023, 176,000 companies disappeared from the market in Germany. Only 11% of them were due to bankruptcy, with most companies choosing to shut down voluntarily, including a growing number of industrial enterprises.
The trend of closures is particularly pronounced in city centers, with men’s clothing stores vanishing from street corners and favorite neighborhood hair salons or Italian restaurants nowhere to be found. Patrick-Ludwig Hantzsch, the economic research director at Creditreform, mentioned that “abandoned shops and empty storefronts have both economic and emotional impacts on nearby residents.”
The closures of construction companies, chemical enterprises, technical service providers, mechanical engineering firms, automotive manufacturers, and electrical engineering companies have a larger impact on the country, often going unnoticed by the public. Hantzsch stated, “The closures in the industrial sector are impacting the core of our economy.” He believes that the trend of “industrial base shrinking” is alarming.
The reasons for companies shutting down vary from economic difficulties to unsuccessful succession plans, as well as factors like death, aging, illness, and other personal reasons. However, the current wave of closures is primarily attributed to economic issues. The report cites high energy and investment costs, supply chain disruptions, labor shortages, and political uncertainties.
Hantzsch remarked, “This is a toxic cocktail for the economy. Small and medium-sized enterprises are particularly hard hit.” The economist added, “Currently, discussions about potential deindustrialization focus mainly on the turmoil of well-known large companies.” However, the silent deaths of many small and highly specialized businesses are equally severe.
Last year, the number of business closures in Germany increased significantly, especially in the manufacturing sector where 11,000 businesses closed, marking an 8.7% rise – the highest level since 2004. Research-intensive enterprises have been severely impacted, with closures in research-intensive companies increasing by 12.3% compared to non-research-intensive ones.
Industries such as chemicals, pharmaceuticals, mechanical engineering, and technology-intensive service providers are especially affected. Sandra Gottschalk from the Institute for Innovation Economics and Industrial Dynamics stated, “Germany’s stagnation of startups, coupled with a surge in business closures, has had a particularly significant impact.”
According to data from the Federal Employment Agency (IAB), the number of startups in Germany decreased by 13% in 2022, with a 16% decline in startups in the manufacturing sector. As indicated by the analysis, investments in these sectors have decreased, resulting in fewer employment opportunities. Investment expenditure dropped from €1.3 billion to €0.873 billion over five years.
The closure rate in Germany’s construction and real estate industry is also high. Although the number of construction companies increased by 2.4% to about 20,000, the exit rate for real estate and housing industry reached 14%. The report highlighted, “The real estate industry is in crisis. Since 2020, the number of voluntary closures or forced bankruptcies has sharply risen.”
Retailers and consumer-related service providers fare slightly better. In absolute terms, the number of closures in these sectors remains the highest. For instance, around 37,000 retail businesses closed in 2023, while 51,000 consumer-related service providers (including hotels, hospitals, clinics, hair salons, and dry cleaners) shut down. However, compared to the previous year, the closure numbers in these two industries have slightly decreased, with a decrease of less than 1%.
In conclusion, economic researcher Hantzsch summarized, “The root cause of Germany’s economic problems lies in its industry.”