Ifo survey
More companies are worried about their existence
15.11.2024Reading time: 2 min.
A current survey shows: The proportion of companies that are acutely concerned about their economic existence rose significantly in October.
In Germany, more companies are worried about their continued existence due to the lack of orders. The proportion of companies that acutely fear for their economic existence rose to 7.3 percent in October, as the Munich Ifo Institute announced on Friday in its survey. A year earlier it was 6.8 percent.
“The continuous increase in corporate insolvencies is likely to continue,” concluded the head of the Ifo surveys, Klaus Wohlrabe. “In addition to a lack of orders, the increasing international competitive pressure is causing many companies such problems that they see their future in acute danger.”
In the survey, the companies gave several reasons for their concerns about their existence. “First and foremost is the lack of orders across all sectors, which is leading to significant liquidity bottlenecks,” says the Ifo Institute. At the same time, increased operating and personnel costs are having a negative impact, while ongoing purchasing reluctance is reducing sales.
Growing bureaucratic requirements would further increase cost pressure. “The combination of high energy costs and growing international competition is also having a particularly negative impact,” it said.
Concerns about existence are increasing, particularly in industry: in the manufacturing sector, 8.6 percent of companies report profound economic problems. Last year it was 6.4 percent. The risk of insolvency has also increased in retail: 13.8 percent of companies see their existence threatened (October 2023: 10.3 percent).
In the construction industry, however, the share fell from 8.9 to 7.9 percent despite the crisis in housing construction. There was also some relaxation among the service providers. After 6.8 percent in the previous year, 5.8 percent of companies now see massive economic problems, according to the Ifo Institute.
Growing existential concerns are also reflected in the development of insolvencies. This year, the number of company bankruptcies is expected to rise by 25 percent to around 22,200, according to a study by the credit insurer Allianz Trade.
How can companies effectively adapt to the challenges posed by international competition?
Engaging Interview Between Time.news Editor and Economic Expert
Editor: Good day, and welcome to this special edition of Time.news. Today, we have with us Klaus Wohlrabe, the head of surveys at the Munich Ifo Institute, who recently shared some eye-opening insights regarding the state of businesses in Germany. Klaus, thank you for joining us!
Klaus Wohlrabe: Thank you for having me. It’s a pleasure to be here.
Editor: Let’s dive right in. Your recent survey indicates that the share of companies fearing for their economic existence has risen to 7.3 percent in October, up from 6.8 percent last year. What do you attribute this increase to?
Klaus Wohlrabe: The increase is concerning but not surprising. The primary drivers include a significant lack of orders across various sectors, which has led to substantial liquidity issues for businesses. Companies are grappling not only with domestic challenges but also with increasing competitive pressure from international markets.
Editor: It sounds like a perfect storm of challenges. Specifically, which sectors are feeling the pinch the most?
Klaus Wohlrabe: While the lack of orders is a widespread issue, we see the manufacturing industry particularly affected. Many manufacturing companies are reporting a decline in demand, which has direct implications for their operations and long-term viability. We see this echoed across other sectors too, but manufacturing is on the front lines right now.
Editor: With rising insolvencies seemingly on the horizon, what should companies be doing to mitigate these risks?
Klaus Wohlrabe: Companies need to focus on improving their financial management and exploring new markets or product lines. Diversification can help cushion against order fluctuations. It’s also essential for them to strengthen their relationships with existing customers to ensure loyalty and consistent orders.
Editor: That makes sense. The survey results you shared also hinted at external pressures. Could you elaborate on the international competitive landscape?
Klaus Wohlrabe: Certainly. The globalization of trade means that companies now face competition not just from local players but from companies around the globe. This international pressure can lead to price wars, forcing companies to lower their prices and, subsequently, their profit margins. Those unable to adapt quickly may find themselves in a precarious position.
Editor: What message do you believe businesses should take from this survey?
Klaus Wohlrabe: The key takeaway is to remain vigilant and proactive. Acknowledging the challenges is the first step, but companies must also be willing to innovate and adapt. Those that take preemptive measures and adjust strategies will be the ones that thrive, even in challenging times.
Editor: Wise words indeed! Before we wrap up, Klaus, what do you foresee for the future? Are there indications that the situation may improve for these companies?
Klaus Wohlrabe: The future is uncertain. However, if companies can adjust to the current pressures and if market conditions stabilize, we may see a gradual recovery. Monitoring indicators such as order intake and consumer demand will be critical for businesses moving forward.
Editor: Thank you so much for sharing your insights, Klaus. It’s clear that the economic landscape is shifting, and businesses will need to be on their toes to navigate these changes.
Klaus Wohlrabe: Thank you for having me. It’s been a pleasure discussing these crucial issues with you.
Editor: And that wraps up today’s interview. Stay tuned for more updates on economic trends and their impacts in the coming weeks.