Poor Economic Prospects Discourage Entrepreneurs

In 2001, the number of business start-ups in Germany decreased by six per cent, continuing the downward trend observed since 1999.

In particular, the number of new business start-ups decreased in East Germany. Compared to the previous year, the number of new start-ups fell by approximately nine per cent in 2001. In Western Germany, the decrease was slightly smaller, totalling five per cent. These are the findings of a study on start-up activity in Germany carried out by the Centre for European Economic Research (ZEW) in Mannheim.

Start-up numbers particularly declined in the construction sector. In 2001, 6.5 per cent fewer construction companies were founded in West Germany. In East Germany, numbers even dropped by 16 per cent compared to the previous year. A primary reason for this is the constantly poor economic situation seen in the construction sector, which has been caused by a significant drop in building investments. Self-employment is lucrative for fewer and fewer persons, particularly as pessimistic economic prospects do not forecast an improvement in the profit situation. The poor situation in the construction sector also harms newly established architecture and engineering firms, since these are mainly active in the construction sector as business-related service providers. In 2001, five per cent fewer start-ups were founded than in 2000.

These poor economic prospects also affect commerce. In West Germany, the number of new start-ups in this sector decreased by five per cent compared to the previous year. In East Germany, the number of newly established firms dropped by twelve per cent.

Contrary to previous years, the number of start-ups established in 2001 decreased not only in construction and commerce, but also in most other sectors. Levels of entrepreneurship particularly fell among IT service providers, who in West Germany, at least, were largely responsible for growing numbers of start-ups in the early to mid-nineties. Due to the crisis of the cross-section industry Information and Communication Technologies (ICT), the boom in IT start-ups came to a sudden end. From 2000 to 2001, the number of new start-ups dropped by 18 per cent.

The decline of entrepreneurship also casts a shadow on the labour market. It can be expected that significantly fewer jobs will be created. This would hit East Germany particularly hard. Compared to 1998, when the start-up boom peaked, 20 per cent fewer jobs were created in 2001.

Contact

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

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