Western country sees wave of bankruptcies

Western country sees wave of bankruptcies

Thirty-two per cent of companies are already having to resort to reduced working hours and lay-offs to cut costs. Meanwhile, more and more companies are being forced to file for bankruptcy.

ECONOMY NOVEMBER 14. 2022 08:30

An increasing number of companies in Germany are being forced to declare bankruptcy due to inflation and unaffordable utility costs. In October, the number of insolvency applications filed by companies increased by 18.4 per cent compared to the previous month, the Federal Statistics Office reported.

The construction sector had the highest number of companies going under, totaling 198 cases, an increase of 4.2 per cent compared to last year. The sector is suffering from supply bottlenecks, rising prices as well as the increasing number of projects being halted due to the crisis. In trade (including maintenance and repair of motor vehicles), there were 167 cases, up 18 per cent from a year ago.

Economic experts predict a recession by 2023, which will be reflected in the situation of micro-enterprises and the self-employed. The mood among small entrepreneurs and the self-employed declined significantly again in October, while concerns about their survival are growing, according to an analysis by the Ifo Institute for Economic Research. The business climate index fell from minus 20.9 points in September to minus 25.0 points, a negative record.

„The economic slowdown is hitting self-employed and micro-enterprises particularly hard. There has been a marked increase in existential concerns. In particular, the outlook for micro-enterprises in retail and construction is bleak,”

Klaus Wohlrabe, head of surveys at Ifo, said.

Even the European Commission expects a recession by the end of 2022, although they expect the economy to grow modestly, by 0.3 per cent, in 2023. In July, growth for 2023 was forecast at 1.4 per cent. „The European economy has reached a turning point,” EU Commissioner for Economy Paolo Gentiloni said. This is due to high levels of uncertainty, high energy prices, declining purchasing power of private households, a weaker global environment and tighter financing conditions.

Germany leads the EU Commission’s economic forecast, with the economy being estimated to shrink by 0.6 per cent, more than any other country in the euro area.

Just how much trouble German SMEs are in is illustrated by a survey by DZ-Bank, which found that the rapid rise in electricity and gas prices is currently the biggest concern for businesses, with costs rising across the board.

„Regardless of the product, practically nowhere can one really get a clear picture of cost development,”

the analysis reads, adding that the energy crisis is hitting medium-sized food companies particularly hard. A significant proportion of small and medium-sized enterprises operate in this sector, which is one of the largest consumers of energy.

For example, bakers, dairy or sugar manufacturers, and even beverage producers need a lot of heat for production, which is mostly generated by gas. The food industry is therefore one of the largest industrial consumers of gas, with a correspondingly high cost burden.

Other industries are also affected to a higher than average degree, such as medium-sized chemical companies, where gas is not only used to generate heat for production but is also used directly as a raw material for the manufacture of many products.

Forty-four per cent of small and medium-sized enterprises in the survey said that gas shortages would have a significant impact on their business. Thirty-two per cent of companies in Germany are already having to resort to reduced working hours and lay-offs to cut costs. Nearly eighty per cent of medium-sized companies surveyed still plan to pass at least part of the increased costs on to their customers. For the country as a whole, Michael Holstein, chief economist at DZ Bank, predicted a sharp decline in economic output. „High energy prices will continue to weigh on Germany and Europe for a long time to come,” he stressed.

 

ECONOMY

Tags:

eu, germany, inflation, recession