Despite success, insolvent? SMEs in structural crisis or comeback? Germany at an economic crossroads – Image: Xpert.Digital
System change at breakneck speed: Germany's rescue plan for the economy
The German economic crisis in 2025: Between a wave of bankruptcies and hopes for investment
The German economy is currently experiencing one of its most difficult periods since the post-war era. What began as a cyclical downturn has now developed into a profound structural crisis that is shaking the country's economic foundations. Despite the investment summit at the Chancellery and the announcement of billions in investments through the "Made for Germany" initiative, the stark figures speak for themselves: Germany is mired in unprecedented stagnation.
Bureaucracy, energy costs, and tariffs kill companies just as much as bad management. But some bankruptcies have their own unique stories
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The dramatic figures of the wave of bankruptcies
The scale of the current corporate crisis is starkly revealed by insolvency statistics. 22,400 companies filed for insolvency in 2024 – the highest number since 2015. This represents a dramatic increase of 24.3 percent compared to the previous year. Particularly alarming is the doubling of creditors' claims from €32.4 billion in 2023 to €64.9 billion.
Experts predict a further worsening of the situation for 2025. The German Economic Institute (IW) expects around 25,800 insolvencies – another increase of 15 percent. This could mean that Germany will soon reach insolvency figures close to the peak levels of the 2009/2010 financial crisis, when over 32,000 companies went bankrupt.
This trend is not limited to specific sectors but extends across all branches of the economy. The transportation and warehousing sectors are particularly hard hit, with 11.3 insolvencies per 10,000 companies, followed by the construction and hospitality industries, each with 9.8 cases. Consumer insolvencies are also on the rise: 72,100 new cases were registered in 2024 – an increase of 8.5 percent.
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The silent death of the middle class
While insolvency statistics already paint an alarming picture, an even more threatening trend lies hidden beneath the surface: the silent demise of Germany's small and medium-sized enterprises (SMEs). Around 196,000 companies permanently closed in 2024 – an increase of 16 percent compared to the previous year. Nine out of ten of these closures are not due to over-indebtedness, but rather to a lack of future prospects.
The figures from the KfW SME Panel reveal the full extent of the crisis: 231,000 entrepreneurs are already planning to close their businesses by 2025 – 67,500 more than last year. In the medium term, within three to five years, another 310,000 entrepreneurs are considering closure. The main reason is often the age of the owners: the average age is 54, and 39 percent of entrepreneurs are even 60 years or older.
This demographic time bomb coincides with a dramatic shortage of successors. Currently, there are less than half as many takeover startups as there are companies ready for succession. The consequence: decades of accumulated know-how and economic substance are being irretrievably lost.
The multifaceted causes of the crisis
Contrary to public perception, the much-discussed energy costs are not the main driver of the crisis. A comprehensive study by DSW and Advyce & Company shows that energy costs account for only four percent of the pressure for transformation. The real problems lie deeper:
Wage and structural costs
At 31 percent, they constitute the biggest factor contributing to the crisis. Producer prices for industrial products have risen by 40 percent since 2020, while German export prices have increased by only 20 percent over the same period. This cost gap is making German companies increasingly less competitive internationally.
Regulatory burdens and bureaucracy follow as the second biggest source of stress, at 24 percent. Companies are frustrated by endless applications, unclear requirements, and a regulatory thicket that stifles innovation and growth. DIHK Chief Analyst Volker Treier is therefore right to demand: “Down with bureaucracy!”.
Increased international competition (21 percent) and the shortage of skilled workers (20 percent) complete the range of problems. The shortage of skilled workers, in particular, has reached a historic high: 86 percent of German companies are struggling to find talent – more than twice as many as in 2014.
Three years of stagnation – Germany at a standstill
The economic reality is sobering: Germany is facing its third consecutive year without any significant economic growth. For 2025, experts expect at best stagnation with growth of 0.0 to 0.4 percent. The employer-affiliated German Economic Institute even forecasts growth of just 0.1 percent after two years of recession.
The Bundesbank no longer expects growth in 2025 and has lowered its forecast from an initial 0.2 percent to zero percent. The EU Commission also predicts stagnation for Germany, after having forecast growth of 0.7 percent in the autumn.
The situation in industry is particularly dire. It is mired in a deep recession and operating at dramatically low capacity. The investment crisis continues unabated: Losses in gross fixed capital formation have already amounted to approximately €210 billion since the beginning of 2020. Four out of ten companies plan to reduce their investments in 2025.
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The bright spot: “Made for Germany” initiative
Amid these gloomy forecasts, the investment summit at the Chancellery provided a glimmer of hope. Sixty-one leading companies have joined forces in the "Made for Germany" initiative and pledged investments totaling €631 billion by 2028. A three-figure billion-euro sum of this will be for new investments.
Participating companies include German corporations such as BMW, Mercedes-Benz, Siemens, SAP, and Deutsche Bank, as well as international investors like Nvidia, BlackRock, and Blackstone. The initiative was launched by Christian Sewing (Deutsche Bank), Roland Busch (Siemens), Mathias Döpfner (Axel Springer), and Alexander Geiser (FGS Global).
Chancellor Friedrich Merz
He expressed optimism: “Germany is back, it is worthwhile to invest in Germany again.” He spoke of one of the largest investment initiatives that Germany has seen in recent decades.
However, companies are linking their investment commitments to structural reforms: less regulation, more freedom for businesses, and more room for innovation. Siemens CEO Busch put it this way: “Germany needs a new operating system – geared towards growth, technology, and competitiveness.”
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Structural challenges require structural solutions
The current crisis is more than just an economic downturn – it is the result of years of neglected structural problems. Michael Grömling from the German Economic Institute puts it succinctly: “This is no longer just an economic downturn, but a serious structural crisis.”
The challenges are multifaceted: the geopolitical shift with trade conflicts and tariffs, the decarbonization of the economy, demographic change, and an overwhelming burden of bureaucracy. These factors overlap and reinforce each other.
Demographic change, in particular, acts as a quiet but powerful force. In the coming years, large birth cohorts will retire, while smaller cohorts will enter the workforce. This will further exacerbate the skilled labor shortage, even if the current economic slowdown is temporarily mitigating it somewhat.
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The way out of the crisis
To overcome the crisis, bold structural reforms are needed. The German government's €500 billion special fund for infrastructure and climate protection is a first step. But more is required: corporate tax reform, incentives for increased working hours, massive investments in infrastructure and defense, and a serious reduction of unnecessary bureaucracy.
The new CDU/CSU-SPD coalition has made these tasks its mission. Whether it has the courage to break with old privileges and implement the necessary reforms will determine whether Germany regains its place among the international leaders or remains mired in stagnation.
The “Made for Germany” initiative demonstrates that business confidence in Germany as a business location remains. Now, politicians must deliver. Time is of the essence – because while these discussions are ongoing, dozens of companies are closing their doors for good every day. Germany stands at a crossroads between decline and a new beginning.
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