A wave of uncertainty: The startup bankruptcies in Germany in 2024 and the challenges for 2025

The year 2024 marks a turning point in the German economic landscape, especially for young and innovative companies. A worrying increase in bankruptcies has emerged, particularly hitting the startup sector with full force. The number of young companies that had to file for bankruptcy this year reached an alarming new high of 336 cases. This value exceeds the already worrying previous year's value by a significant 17 percent and is even 85 percent higher than the 2022 level. This development is not just an abstract statistical quantity, but is manifested in concrete cases that attract public attention. Names like the ambitious charging station provider Numbat and the future-oriented air taxi developer Volocopter are examples of the failure of promising business models under the current economic conditions. Their fate illustrates the fragility that even innovative and forward-looking companies face when economic headwinds blow too strong.

However, the current wave of bankruptcies is not a singular event that can be viewed in isolation. Rather, it is a symptom of deeper problems and a result of a complex interplay of various economic factors that have become more pronounced in recent months and years.

The complex causes of the wave of bankruptcies

The reasons for this worrying development are complex and interwoven. It is not a single cause, but a bundle of factors that reinforce each other and make the economic situation increasingly difficult for many companies.

A central factor is the persistently high interest rates. The European Central Bank (ECB) has gradually increased key interest rates in the fight against inflation. However, this measure, which aims to curb price increases, has clear consequences for companies. Higher interest rates make borrowing significantly more expensive. This not only applies to investments in new projects and expansions, but also to the refinancing of existing loans. Young companies and startups in particular, which often rely on outside capital, come under pressure. The higher financing costs reduce their margins and make it more difficult for them to operate profitably. For established companies, higher interest rates mean that planned investments may have to be postponed or even canceled, which in turn affects the growth potential of the entire economy.

Added to this is the general economic weakness. Global economic growth has slowed and Germany, as a heavily export-oriented nation, is also feeling the effects. Declining demand from abroad, geopolitical uncertainties and trade conflicts are weighing on the German economy. These macroeconomic factors create a difficult environment for companies as they receive fewer orders and find it more difficult to sell their products and services. The uncertainty about future economic development is also leading to reluctance to invest and consume, which further exacerbates the situation.

Consumer reluctance is another important factor. In view of high inflation and rising energy prices, many consumers are unsettled and are holding on to their money. They are restricting their spending on non-essential goods and services, which is directly affecting the sales of many companies, especially in retail and restaurants. This reluctance to purchase increases the downward pressure on the economy and contributes to the strained financial situation of many companies.

A specific problem that particularly affects startups is the difficulties with follow-up financing. Many young companies rely on venture capital in their early stages to finance their growth. However, in an uncertain economic environment, investors have become more cautious and are holding back on making new investments. For startups, this means that funding for the next phase of growth is at risk. If follow-up financing does not come, even promising business models get into trouble and are forced to file for bankruptcy. The dependence on external capital and the volatility of the investment climate therefore represent a significant challenge for the startup scene.

The drastically increased costs for energy and labor should not be underestimated. Energy prices have risen massively in recent years, particularly due to the war in Ukraine. This puts a strain on energy-intensive industries and increases production costs for many companies. At the same time, there is a shortage of skilled workers in many areas, which is leading to rising wages and salaries. These increased personnel costs further reduce companies' margins. The combination of high energy and labor costs puts enormous pressure on many companies, especially those with low profit margins.

The gloomy outlook for 2025

The current situation is already worrying, but the forecasts for the coming year do not indicate any relief soon. Experts warn that the situation will worsen further and expect a continued increase in the number of insolvencies.

The credit agency Creditreform predicts a further increase in corporate insolvencies for 2025. This assessment is based on the analysis of current economic trends and the expectation that the above-mentioned stress factors will continue in the coming year.

The credit agency Crif is even more specific, expecting up to 26,000 bankruptcies in 2025. This would correspond to an increase of a remarkable 16.3 percent compared to the already high level of 2024. This number illustrates the extent of the crisis and the challenges facing the German economy.

Insolvency researchers are even warning of a possible approach to the highs of 2009 and 2010, when over 32,000 companies went bankrupt as a result of the global financial crisis. This gloomy forecast underlines the seriousness of the situation and the need to address the causes of the wave of insolvencies and take targeted measures to support companies. If these fears come true, Germany would be facing one of the largest waves of insolvencies of the post-war period.

Affected industries and the far-reaching effects

The wave of insolvencies does not stop at any industry, but it hits some sectors particularly hard. The heterogeneity of the sectors affected shows that this is a problem affecting society as a whole and not just an isolated phenomenon in individual sectors of the economy.

The construction industry is particularly hard hit. The increased material costs, especially for steel, wood and insulation materials, as well as the high interest rates for construction financing are putting the industry under massive pressure. Numerous construction projects are being postponed or canceled, leading to a lack of orders and, as a result, bankruptcies among construction companies and suppliers. The situation is further exacerbated by the shortage of skilled workers, which is driving up wage costs.

Retailers are also suffering from consumers' reluctance to consume and increased operating costs. Stationary retail in particular is under pressure as more and more customers shop online. Competition from online retail and the need to adapt to changing consumer habits pose major challenges for many retailers.

Business-related services are also severely affected by the wave of insolvencies. These include, for example, advertising agencies, consulting companies and IT service providers. When companies face economic difficulties, they often cut back on these services first, leading to a decline in orders and, as a result, bankruptcies in this sector.

There has also been a significant increase in bankruptcies in the manufacturing sector. High energy prices, increased raw material costs and declining demand from abroad are putting pressure on many industrial companies. Energy-intensive sectors such as the chemical and metal industries are particularly affected. The need to invest in new technologies and more environmentally friendly production processes further exacerbates the financial situation of many companies.

The startup scene is particularly suffering from the difficult financing situation. As already mentioned, young companies rely heavily on venture capital. The reluctance of investors and the difficult conditions for follow-up financing mean that many startups no longer have sufficient funds to further develop their business models and grow. The high number of startup insolvencies in 2024 is an alarm signal for Germany as a location for innovation.

The effects of the wave of insolvencies are serious and extend far beyond the companies affected

The estimated damage amount for 2024 is an immense 56 billion euros. This sum includes not only the direct losses of creditors, but also the indirect costs that arise from the loss of jobs and the impairment of economic cycles.

Around 320,000 jobs were affected or at risk of bankruptcies in 2024. The loss of jobs not only has serious consequences for the affected workers and their families, but also puts a strain on social systems and the regional economy. The fear of job loss can also further dampen the population's propensity to consume and thus further aggravate the economic situation.

The current wave of insolvencies ruthlessly reveals the structural weaknesses of the German economy. Dependence on fossil fuels, the shortage of skilled workers, bureaucracy and slow digitalization are just some of the challenges that affect Germany's competitiveness as a business location. The wave of insolvencies is therefore also a wake-up call to address these structural problems and improve the framework conditions for companies.

Strategies in a crisis: How companies can prepare themselves

Given the uncertain economic situation, companies, especially startups, need to rethink their strategies and prepare for a challenging business environment. It is important to strengthen the resilience of your own business model and take proactive measures to overcome the crisis in the best possible way.

Strict cost control is essential in this phase. Companies need to carefully examine their expenses and reduce unnecessary costs. This can be achieved, for example, by optimizing processes, reducing travel costs or renegotiating contracts with suppliers.

Securing liquidity has top priority. Companies should optimize their receivables management in order to collect payments quickly. Checking inventory levels and reducing capital tied up in the warehouse can also help secure liquidity. The early search for financing alternatives and maintaining contact with banks and investors are also crucial.

In some cases, adapting the business model may be necessary to respond to changing market conditions. This can mean, for example, opening up new business areas, developing new products and services or focusing on more profitable segments. Innovation and flexibility are of great importance in times of crisis.

Maintaining customer relationships is more important than ever. In a difficult market environment, it is crucial to retain existing customers and strengthen their loyalty. Good customer service and close communication can help increase customer loyalty.

The motivation and retention of employees also play a crucial role. Especially in times of crisis, it is important to have a strong team that works together to overcome challenges. Open communication and involving employees in decision-making can help strengthen engagement.

The way out of the crisis: necessary measures and long-term perspectives

Without significant improvements in economic conditions and targeted support measures, a turnaround is unlikely in the near future. A package of measures at various levels is required to get the German economy back on a stable growth path and to stem the wave of insolvencies.

The ECB’s monetary policy plays a crucial role. A moderate adjustment of interest rate policy could help take the pressure off companies without neglecting the fight against inflation. It is important to find a balance between curbing inflation and supporting the economy.

The federal government's fiscal policy is also called upon. Targeted relief measures for companies, for example through tax breaks or funding programs, could help reduce the financial burden and stimulate investment. Investments in future fields such as renewable energies and digitalization are also crucial in order to secure the competitiveness of Germany as a location in the long term.

Bureaucracy must be reduced in order to ease the burden on companies and improve the conditions for founding companies. Complex approval procedures and excessive regulations hinder innovation and create unnecessary costs. A leaner administration and simpler processes could increase Germany's attractiveness as a business location.

Promoting innovation and research is essential to ensure the long-term competitiveness of the German economy. Investments in new technologies and support for research institutions are crucial to create sustainable jobs and tap new growth potential.

Strengthening the European internal market and reducing trade barriers could help improve German companies' export opportunities and reduce their dependence on individual markets. Closer cooperation within the European Union is more important than ever in these challenging times.

The current wave of insolvencies is a clear signal that the German economy is facing major challenges. Joint efforts from politics, business and society are required to combat the causes of the crisis and set the course for a sustainable and resilient economy. Overcoming these challenges will be crucial for Germany's future prosperity.

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