Data for the first three quarters of 2025 have shown that smaller German firms have borne the brunt of almost three years of economic downturn in Europe’s biggest economy over the past three years.
On December 12, the chief analyst at the Association of German Chambers of Industry and Commerce (DIHK), Volker Treier, told news agency Reuters that the “wave of insolvencies continues.” He added that small and medium-sized enterprises in particular were “running into difficulties.”
In a recent survey, DIHK found that nearly one in three companies with fewer than 20 employees expects its business situation to worsen. Such firms account for roughly 85% of all businesses in Germany.
Official figures confirm the trend, with Germany’s Federal Statistical Office (Destatis) stating on the very same day that German local courts recorded 18,125 corporate insolvency filings by the end of September, almost 12% more than in the same period last year.
This makes the number of company bankruptcies in the first three quarters of 2025 the highest since 2014.
German insolvencies rise amid runaway costs and inflation
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Small firms most exposed
The disproportionate exposure of small businesses to a stagnating economy comes as no surprise to insolvency researchers.
Steffen Müller, head of insolvency research at the Halle Institute for Economic Research (IWH), says the recent wave of insolvencies “overwhelmingly occurs in the small-business segment.”
The median insolvent company had employed around 10 people, he told DW, but added that “most are even smaller.”
The broader financial stress is also visible beyond the corporate sector. Personal bankruptcies rose again this year, with 57,824 consumer insolvencies recorded in the first three quarters, up more than 8% year on year.
Rising pressure on jobs
Although most bankruptcies involve small firms, the surge has also led to a sharp increase in the number of jobs lost or at risk. According to IWH estimates, around 170,000 positions are affected this year, up from fewer than 100,000 before the COVID-19 global pandemic.
Klaus-Heiner Röhl, an economist at the German Economic Institute (IW) in Cologne, cautioned against overstating the impact on employment. “Insolvencies do contribute to slightly higher unemployment,” he told DW, “but the development is not dramatic.”
IWH researcher Müller, however, expects the labor market effects to be more pronounced. His estimates point to around 200,000 affected jobs in 2025, roughly double the level seen in the years before the pandemic.
“Some of these positions are likely to be permanently lost because insolvencies lead to closures,” he said.
At the same time, Müller stressed that the overall impact remains manageable, as jobs were often created elsewhere and workers would move from weaker firms to stronger ones during periods of market adjustment.
A foreseeable trend?
Both economists think the rise in insolvencies was broadly expected. “An increase was foreseeable,” Müller said, although the scale of the surge was “somewhat surprising.”
Röhl agreed, pointing to Germany’s prolonged economic stagnation. “Given the persistent weakness in the economy, insolvency numbers could have been even higher,” he said.
Röhl attributed the rise primarily to macroeconomic factors, citing nearly three years of “stagnating or slightly declining economic output.” Elevated energy prices, Russia’s war in Ukraine, and the transition toward climate neutralityhave further strained companies’ finances.
However, Röhl added that it was “difficult to quantify how much delayed policy reforms or late corporate adjustments have contributed to the problem.”
Müller also rejected assigning blame to any single factor. “Insolvency reasons are always highly individual,” he said, pointing to issues such as poor product choices, management conflicts, or disputes with key stakeholders. When these weaknesses coincide with rising costs, structural change, geopolitical uncertainty, and tariffs, “insolvency occurs more quickly.”
According to Müller, it remains relatively rare for fundamentally sound and competitive companies to fail solely because of “deteriorating external conditions.”
Limited signs of relief
Germany’s Association of Insolvency Administrators and Trustees (VID) struck a cautious note of optimism.
“After the catch-up effects from the pandemic and the associated increase in insolvencies, developments are beginning to normalize,” VID chairman Christoph Niering told German news agency dpa recently. He emphasized that this does not yet amount to a turnaround, “but there is light at the end of the tunnel.”
What happens when German businesses go bankrupt?
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Müller expects insolvency numbers in 2026 to remain close to the elevated levels seen this year.
“That is only partly good news,” he said, warning that Germany has entered a “red zone.” The situation should not deteriorate much further because among bigger corporations insolvency levels are comparable to those last seen about 20 years ago.
Röhl also sees a potential easing ahead. If the German economy expands by around one percent next year, as several institutes forecast, he believes insolvency activity should decline as well.
“Structural challenges, however, will persist as US tariffs, competition from China, and high energy costs are not going away,” he cautioned.
This article was originally written in German.
