Sharp Rise in the Number of Closures in the Manufacturing Industry
Research
28.05.2024
Increase in Company Closures
Empty storefronts and deserted shop premises are increasing – more and more companies are closing and exiting the market. It is not just retailers, consumer-oriented service providers, and restaurants that are having to shut down. The construction and manufacturing industries are also seeing a significant rise in closures. A recent analysis by ZEW Mannheim, in collaboration with Creditreform, highlights how the industrial base of the German SME sector is strongly eroding.
In 2023 alone, around 176,000 companies in Germany were closed. Most of these closures happened quietly, with only 11 per cent resulting from insolvency. This represents a 2.3 per cent increase in closures compared to 2022, affecting all industries and company sizes.
Research-intensive sectors falling behind
Alarmingly, the industrial base is not the only thing shrinking. Within the manufacturing industry, a distinction based on the degree of innovation reveals that the number of closures in research-intensive sectors has risen significantly by 12.3 per cent, compared to non-research-intensive sectors. “In industries such as furniture manufacturing or the production of toys and sporting goods, we are even seeing a decrease in closures,” reports Dr. Sandra Gottschalk, a researcher in ZEW’s “Economics of Innovation and Industrial Dynamics” Unit. “However, in other areas like the chemical and pharmaceutical industries, mechanical engineering, and technology-intensive services, more companies are exiting the market,” she adds. The effect is particularly pronounced in these sectors as stagnant new business formations contrast sharply with rising closures. “When the number of new companies doesn’t grow, the number of closures rises disproportionately,” explains Gottschalk.
Troubled industry
The most visible victims of the deteriorating economic situation are the locally-owned menswear shops, neighbourhood Italian restaurants, and traditional barbers. In 2023, about 37,000 retail businesses closed. In consumer-related services, the number was around 51,000. These figures are significantly higher than in 2018, although the trend has slightly declined compared to the previous year – down by 0.8 per cent in retail and 0.5 per cent in consumer-related services.
“Derelict shops and empty storefronts have an economic and emotional impact on the people who live there. However, the closures in the industrial sector affect the core of our economy,” says Patrik-Ludwig Hantzsch, head of Economic Research at Creditreform. The number of closures in the construction industry rose by 2.4 per cent from 2022 to 2023, reaching 20,000 companies, while in the manufacturing industry, closures increased by 8.7 per cent to 11,000. This is the highest number since 2004.
About the methodology
The study utilises the Mannheim Enterprise Panel, which is based on the Creditreform business database, the most comprehensive dataset covering all companies in Germany. Due to the high level of detail, the data provides insights into individual industries.
