Record-High Business Insolvencies Mark Germany’s Economic Struggles in 2025 Amid Sluggish Growth Outlook for 2026

Germany faces mounting economic challenges as 2025 closed with the highest number of business insolvencies in two decades. According to the Halle Institute for Economic Research, a total of 17,604 insolvencies were recorded last year, surpassing any year since 2005. December alone saw 1,519 insolvencies, a 17% increase from November and 14% higher than December 2024 — figures 75% above the 2016 to 2019 December average. The manufacturing sector was particularly hard hit, losing around 62,000 jobs, contributing to about 170,000 total jobs affected across all sectors in 2025.

Steffen Müller, head of insolvency research at the IWH, stated that these high numbers can no longer be attributed to COVID-19 recovery effects or low interest rates but are part of ongoing market restructuring that paves the way for more sustainable companies. Early indicators suggest high insolvency levels will persist into early 2026.

Meanwhile, Germany’s broader economic outlook remains cautious. The Deutsche Bundesbank cut its growth forecast for 2026 slightly from 0.7% to 0.6%, following a stagnant 2025 with an estimated 0.1% growth rate amid a recession ongoing since late 2022. The ifo Institute aligns with this view, predicting only 0.8% growth next year. Challenges such as dependency on Russian gas, geopolitical tensions, inadequate investment, and infrastructure issues weigh heavily on Germany’s ability to recover quickly.

Chancellor Friedrich Merz's government has announced an ambitious investment program totaling up to one trillion euros over the next decade, focusing on infrastructure and defense, though effectiveness and implementation are under skepticism by experts. A slight boost to GDP is possible through an increased number of working days in 2026, offering a 0.3% potential uplift.

However, concerns about fiscal sustainability remain, with projections indicating that Germany’s national debt could rise substantially by 2035, worsening fiscal pressures.

As insolvencies reach historic peaks and economic growth stalls, Germany faces a complex landscape where restructuring businesses and cautious policymaking will be crucial to navigating the ongoing downturn and setting foundations for future recovery.