The number of bankruptcies in Germany continues to grow. Is it a sign of deep structural weakness in the economy or a "market cleansing" that could eventually even boost economic growth?
How much is Germany? economy really in bad condition? The number of company bankruptcies is often cited as one of the indicators. And here comes worrying news.
Prema studies by the Libnitz Institute for Economic Research in Halle (IWH), the number of bankruptcies of partnership and capital companies in Germany in June it was 80 percent higher than in the average June in the period from 2016 to 2019, i.e. before the pandemic corona.
These data do not include independent entrepreneurs, those engaged in freelance professions and small businesses, because they do not have a significant impact on the labor market. Partnerships and capital companies account for 90 percent of the jobs affected by bankruptcies and 95 percent of the claims that are included in bankruptcy proceedings.
According to Steffen Müller, Head of Bankruptcy Research at IWH, the number of company bankruptcies reached the highest level in the last twenty years in the second quarter of 2026. This is not a surprise, because even during the previous quarters, more and more companies went bankrupt.
The German economy has been stumbling for years, and even the expected recovery this year will probably not bring more than weak growth. This corresponds to the news from large companies announcing job cuts.
For example, from Volkswagen states that 100.000 jobs could disappear in the coming years. Auto parts manufacturer ZF plans to cut 14.000 jobs by 2028. And Bosch intends to reduce the number of employees by more than 20.000 by 2030 in Germany alone.
And it's not just the automotive industry that suffers.
After more than 100.000 jobs were already lost in the industry last year, according to studies of the consulting company Horvath, during 2026, another 100.000 jobs could be eliminated, both in the automotive industry and in the engineering and construction sectors.
The question is whether we are currently witnessing a necessary market purification or a deep structural weakness of the economy.
Bankruptcies, namely, can have positive effects. When unproductive businesses disappear from the market, labor, capital and knowledge are freed up and can be redirected to more productive sectors of the economy. This is how growth occurs according to the principle of "creative destruction" of the economist Joseph Schumpeter.
If people who lose their jobs due to bankruptcy quickly find new employment, that would speak more in favor of market purification. Indeed, the unemployment rate is rising only gradually for now.
Therefore, people who lose their jobs generally manage to find new employment. However, Miller points out for Deutsche Welle that this is partly a consequence of the fact that the generations born during the post-war "baby boom" are now retiring en masse, while at the same time there is no longer a significant influx of labor from the European Union. Therefore, these workers do not necessarily move from less productive to more productive companies.
According to Juta Ridlin, in addition to the number of bankruptcies, the number of newly founded companies should also be observed.
"Young companies often end up in bankruptcy above average, and the number of new establishments has increased compared to last year," says Ridlin, who is also a member of the board of directors of the Association of Bankruptcy Administrators and Trustees of Germany (VID).
According to the data of the Federal Bureau of Statistics, in the first quarter of 2026. more than ten percent of new business entities were registered than in the same period of the previous year.
"For years now, we've seen growth in the number of growth-oriented startups," says Miller. "That's good news. Many of them are working in the field of artificial intelligence, and that's certainly a glimmer of hope."
This, in his opinion, indicates that the German economy is currently in the midst of a kind of structural transformation.
On the other hand, it cannot be said that the crisis affects only certain branches of the economy. "A year and a half ago, we had relatively many major bankruptcies in the industry," says Miller.
Today the situation is different. Now the negative trend is affecting almost all sectors, which is more indicative of the structural weakness of the economy.
However, the construction industry and residential construction in particular suffer the consequences of rising interest rates. The hospitality industry faces problems due to the increase in the minimum wage, energy-intensive companies are affected by the rise in energy prices, while trade suffers due to changed consumer behavior.
Ridlin emphasizes that there is more than just one cause behind most bankruptcies.
Healthy companies have proven to be relatively resilient to external shocks in the past. Events like the war with Iran act as a catalyst in companies that have had serious problems before. These can be outdated business models, late business decisions or missed business transformation.
Another argument in favor of the market purification thesis is the residual effects of the pandemic. During that period, many companies received state aid, which they now have to pay back. This also applies to companies that might not be able to survive even under normal market conditions.
Therefore, according to Ridlin, we still have to reckon with the consequences that have been delayed since the time of the pandemic. The bankruptcy expert believes that the process of market purification and the structural weakness of the economy are currently intertwined.
IWH researcher Steffen Müller evaluates the situation somewhat more dramatically: "I think this is more than a simple market cleansing. It is a question of which direction the German economy will develop in the future."
According to him, the number of bankruptcies is in the "red zone".
"We have not yet reached the point where the negative effects are massively transmitted to other firms or where the banks would get into serious trouble. But we are certainly in the middle of a strong structural transformation of the German economy," concludes Müller.
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