A study by a major German credit insurer has shown an increasing number of large firms filing for insolvency could have a domino effect on the entire German economy.
Significantly more German companies filed for insolvency in 2019 than in 2018, according to a study by German credit insurer Euler Hermes. Weak growth is also predicted for 2020.
Insolvencies of large German companies increased by 42% in the first nine months of 2019, when compared to the same time last year. Twenty-seven German companies with turnover exceeding €50 million ($55 million) folded, compared to 19 cases in 2018.
According to the study, the insolvencies have hit a broad swath of important sectors like manufacturing, services, retail and energy.
Some big names in 2019 included wind turbine manufacturer Senvion, industrial parts company Eisenmann, airline Germania, sports equipment manufacturer Kettler, and retailers Gerry Weber and Beate Uhse.
The German branch of the shuttered British travel company Thomas Cook also filed for insolvency this year. Many sectors are facing numerous challenges that they need to overcome.
Almost all companies in Germany are dealing with a massive structural shift with digital transformation and sustainability policies. Overall, the most German insolvencies in the first three quarters of 2019 were in the retail and construction sectors.
What is really dramatic about these large insolvencies is the domino effect on a lot of companies along the supply chain. If a large company goes under, smaller companies supplying parts, machinery or services can lose out on unpaid orders.
It isn’t unusual for them to be pulled into a downward trend, which in the worst case also ends in insolvencies. According to the study, the average revenue of the insolvent companies in the first three quarters of 2019 was €339 million — an 81% increase in damage to the economy from 2018.
On Friday in Berlin, German Economy Minister Peter Altmaier introduced the final draft of Germany’s “National Industry Strategy 2030.”
The strategy includes improving conditions at home to make German industry more competitive with proposals for tax breaks and lower energy costs.
Deutsche Welle / ABC Flash Point News 2019.