Under multiple pressures, some German companies are laying off employees and restructuring
2023 has already been an exceptionally difficult year for the German economy. Affected by various factors such as high interest rates, high inflation, and weak global demand, Germany's gross domestic product shrank by 0.3% last year, making it not only the only developed economy in the world to experience a recession, but also ranked last in the economic rankings of EU countries. The German government has recently lowered its economic growth forecast for 2024 to 0.2%, which means the German economy may only barely avoid recession this year.
What worries many people is that most German companies have been troubled by the energy crisis and high inflation for more than two years. Nowadays, not only is global economic growth sluggish, but many technical problems in Germany, such as a shortage of technical talents, high taxes, and high production costs, have not yet found effective solutions. Companies may find it difficult to sustain themselves and may form a wave of layoffs or bankruptcy restructuring.
According to data from the German Bureau of Statistics, the number of bankruptcies of German companies increased by 26% year-on-year in January this year. The German Chamber of Commerce (DIHK), representing the German business community, pointed out that the confidence of German companies continues to decline, accounts receivable increase, funding chains may be impacted, and bankruptcy trends are becoming increasingly severe.
Credit insurance company Allianz Trade recently released a bankruptcy research report, predicting that German corporate bankruptcy cases in 2024 will increase by 13% year-on-year. The report suggests that the sustained weakness of the German economy, structural challenges, and difficulties in financing conditions have made it difficult for businesses to operate, and even forced them into bankruptcy and restructuring.
Milo Bogaerts, the head of Allianz Trade in Germany, Austria, and Switzerland, said that the growth rate of German corporate bankruptcies significantly accelerated in the second half of last year, putting the hotel, trade, and construction industries in a particularly dangerous situation.
According to a survey by German credit institution Creditreform, the hotel and catering industry in Germany is particularly difficult to operate, with 27% of companies filing for bankruptcy last year, far above the average level. Patrick Ludwig Hantzsch, the head of the company's economic research department, said that the outlook for the hotel and catering industry is not optimistic, "assessments indicate that this wave has just begun and the trend of corporate bankruptcy will continue.".
In addition, the outward oriented German economy, especially the German manufacturing industry, is more susceptible to the impact of rising energy prices on industrial production and investment and financing. Since the beginning of this year, several large German industrial enterprises have announced layoff plans. According to reports, Continental, a German automotive parts supplier, has announced plans to lay off 7150 employees worldwide by 2025, including 1750 jobs in the research and development department. Bosch, Meile, Evonik and other top German companies have also recently laid off thousands of employees each.
A recent investigation by Handelsblatt, a German newspaper, into some large family businesses in Germany showed that although these companies have not yet planned large-scale layoffs, they are freezing unnecessary investments and reducing new jobs. The interviewed companies said that the current economy is weak, and there is a shortage of skilled workers, making the situation very fragile.
According to Angelique Renkhoff Muecke, a negotiator for the Bavarian Association of Mechanical and Electronic Industries in Germany and president of Warema, a manufacturer of shading equipment for Germany's hidden champions, many German companies are facing their worst situation in over a decade, and the negative outlook is worrying.