Firm Foundations in Germany: Downward Trend Weakens

The bottoming-out of the persistent downward trend of firm foundations in Germany, since 1999 the case, seems to have been reached. The semi-annual examination of firm foundations in Germany by the Centre for European Economic Research (ZEW) in Mannheim reveals that the number of firm foundations for the year 2002 has stayed the same in comparison to 2001.

The number of foundations in West Germany has in comparison to the previous year hardly changed. In East Germany it has actually gone down by about three percent which is far less than the year before.

Commerce, which makes up the second largest number of foundations, had the most significant effect upon the stabilisation in the number of foundations. In 2002 in this branch 3.5 percent more firms were founded than in the preceding year. It is, however, important to keep in mind the number of firm closures. If a retail store closes, its space can usually be taken by a new retail seller without much expense. This allows for a high fluctuation. The increasing number of foundations in this branch may therefore be interpreted as a replacement for those exiting the market.

The number of consumer-related service foundations, the largest group of all foundations, has basically stayed constant. While in West Germany the number of firm foundations in this branch has increased by about two percent in comparison to the previous year - especially the hotel and restaurant industry has seen a positive development -, it has once again declined around 3.5 percent in East Germany.

In the manufacturing sector the downward trend in foundations which began in 1999 has continued. The number of newly founded firms sunk in West Germany by a little more than five percent and in East Germany by around 8.5 percent in comparison to 2001. Particularly, the manufacturers of data processing equipment have seen a decline in the number of foundations. This can be blamed on the poor economic situation in the PC market.

The number of firm foundations in business-related services has also declined in comparison to the previous year. In East Germany, in comparison with 2001, there has been a similar number of firm foundations in this branch in 2002. In West Germany the number of firm foundations has declined due mostly to the poor development of software producers.

Contact

Dr. Georg Metzger, E-mail: metzger@zew.de

Dr. Diana Heger, Phone: +49 (0)621 1235-382, E-mail: heger@zew.de