German economy in free-fall – one in seven firms facing RUIN as inflation erupts

Olaf Scholz is sworn in as Germany's new chancellor

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That is according to findings from a report by Munich-based Ifo Institute for Economic Research in December, which surveyed 9,100 companies across all sectors. It found 14 percent of the firms involved in the research fear for their existence as a result of the Covid pandemic continuing to spark chaos throughout Germany. Last month, 17.1 percent of firms in the retail sector expressed fears over their future.

This compared to 14.4 percent from the last survey carried out in June 2021.

In the hospitality sector, the situation remains ever-more critical, with more than half (52.5 percent) of restaurants and pubs fearing their existence is threatened.

The crucial tourist accommodation sector appears to be in an even worse position, with the figure rising to 58.8 percent compared to 52.1 percent six months earlier.

However there is better news for manufacturers, with just 5.7 percent of firms in this sector seeing their existence threatened.

Klaus Wohlrabe, head of the ifo surveys, said: “Travel agencies and tour operators still feel particularly at risk with 73.2 percent and companies from the event industry with 67.4 percent.”

Commenting on the finding that 17.1 percent of companies in the retail sector fearing for their future, he added: “This is also a consequence of the reluctance of consumers.”

But the feared bankruptcy wave in Germany has not happened, at least not yet.

The number of corporate insolvencies fell by 10.8 percent to 14,300 cases last year, according to credit agency Creditreform.

The firm attributes this to extensive state aid, despite the Covid restrictions imposed on several industries and the under-pressure economy.

Creditreform said: “When it comes to corporate bankruptcies we measured the lowest value since the introduction of the bankruptcy code in 1999 and only counted half as many bankruptcies as in 2012.”

Last week it was revealed inflation in Germany is expected to hit its highest level in nearly 30 years.

Inflation in December was estimated to stand at 5.3 percent, according to estimates by the nation’s Consumer Price Index.

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This is an increase of 0.5 percent from November, with the inflation rate for 2021 is expected to stand at 3.1 percent.

That would be highest inflation rate Germany has seen since 1993.

But in a further blow for the EU’s largest economy, economic experts have warned it could be some time before German inflation rates fall again.

Speaking to the dpa news agency, a spokesperson for the Leibniz Institute for Economic Research said: “The sharp rise in natural gas prices is not likely to reach consumers until the beginning of 2022 due to the existence of long-term contracts with gas suppliers in many cases.”

Peter McCallum, a bank rates strategist at Mizuho Bank, told Reuters: “There is still a sense that [eurozone] inflation could surprise to the upside for longer than expected, so markets have to position for the view that the ECB could capitulate and move earlier on rates.”

Additional reporting by Monika Pallenberg.

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