Insolvencies in Germany: Construction Industry Continues to Shrink

Over the past year, the number of businesses filing for bankruptcy in Germany has once again shown significant increases. The Mannheim Centre for European Economic Research (ZEW) examined start-up numbers and insolvencies in Germany drawing on data from the ZEW Start-Up Panel. The results suggest that this phenomenon affects different sectors to a varying extent.

It is above all, businesses in the construction industry and various manufacturing industries which find themselves facing a considerable crisis. In 2001 for example, for every 100 new businesses established in the construction and manufacturing industries, these sectors also reported 32 insolvencies.  In the previous year, there were 25 insolvencies for every 100 start-ups.  This finding is particularly controversial, in view of the fact that insolvencies make up only a small proportion of all business closures.  Investigations undertaken as part of the ZEW Entrepreneurship Study show that in West Germany, insolvencies represent around 30 per cent of all firm closures in the manufacturing sector, construction industry and in business-related services. So-called voluntary closures account for the rest. The construction industry is virtually shrinking. This trend may become even more marked, if, as a result of the cessation in home-building grants, fewer individuals are able to build their own homes.

Consumer and business-related service providers, as well as businesses in the field of Information and Communication Technologies (ICT) find themselves in a more favourable situation. Despite the crisis of the New Economy in 2001, 100 newly founded businesses were matched with "only" eight insolvent firms in the ICT sector.  Given that insolvencies make up around 40 per cent of all firm closures in this sector, the number of businesses in this field increased considerably.  This is also the case for business-related service providers.

The situation in regards to insolvencies still varies considerably between East and West Germany. Taking all sectors into account, there are 22 insolvencies for every 100 start-ups in East Germany; in West Germany, this figure falls to 12 per 100. It does appear, however, that the sectors with the highest insolvency rates are the same in East and West Germany.

Note from the editor

ZEW Start-Up Panel:Analysis is based on data regarding business start-ups, growth and closures, held by the credit agency, Creditereform. The panel receives information concerning approximately 2,090,000 West German, and 795,000 East German companies.

ZEW Entrepreneurship Study:In 1999, surveys were carried out by telephone amongst 12,000 East German and West German companies. Interview information is available for 3,700 businesses.

Contact

Prof. Dr. Dirk Engel,  E-mail: engel@zew.de

Dr. Helmut Fryges, Phone: +49(0)621/1235-189, E-mail: fryges@zew.de