IWH Bankruptcy Update: Still No Bankruptcy Wave in Sight; Number of Impacted Jobs Reaches New Low
After declining in April, the number of corporate bankruptcies fell even further in May. According to data gathered by IWH, only 682 firms filed for bankruptcy last month. The bankruptcy rate thus dropped 11% between April and May. Furthermore, in comparison to May of last year, the bankruptcy rate was more than 30% lower (see figure 1).
According to IWH analysis, the largest 10% of firms (in terms of headcount) filing for bankruptcy in May had just under 4,400 employees in total. This means that the number of jobs impacted by bankruptcy is not only significantly below that of previous months, but also 75% below that of May 2020 (see figure 2).
“The wave of bankruptcies predicted by many observers has so far failed to materialise, as correctly predicted by IWH,” says Steffen Müller, the head of Department Structural Change and Productivity and the director of Bankruptcy Research at IWH. “Furthermore, we do not expect a wave to occur in the near future.” According to Müller, most firms entered the pandemic in good health and still have functioning business models.
The further lifting of lockdown measures will particularly benefit hard-hit businesses, including many retailers, hotels, and restaurants. Given the recovery anticipated in these industries as well as the government support measures that are still in place, the number of corporate bankruptcies is not expected to jump, Müller explains.
Looking beyond registered firms – which are generally larger and thus more important to the macroeconomy – starting in February there was a sharp uptick in the number of bankruptcies among microbusinesses and the self-employed. However, this trend lost steam in April and trended sideways in May.
The IWH Bankruptcy Update is a flash indicator, delivering fast, reliable information on insolvencies of firms with entry in the commercial register in Germany two months ahead of the comprehensive official statistics. It is based on public bankruptcy announcements of German courts combined with balance sheet information of the concerned firms. Deviations from official statistics are small (see figure 3). The IWH Bankruptcy Research Unit is among Germany’s leading investigators of the causes and consequences of corporate bankruptcy.
For more on the IWH Bankruptcy Research Unit and the methodology underlying it, please visit https://www.iwh-halle.de/en/research/data-and-analysis/iwh-bank ruptcy-research/.
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