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Germany BANKRUPTCY warning over wave of financial distress ‘to hit companies NEXT YEAR’

Lucas Flöther, insolvency administrator of Air Berlin, has forecast financial downturn for automotive suppliers, the retail trade and companies in East Germany for the coming year. Credit agency Crif Bürgel shared similar negative sentiment as it predicted 305,000 companies across the country would be beginning the financial year with financial problems. Mr Flöther said: “Bankruptcies are already slightly on the rise again and that will intensify significantly next year.” The main areas of concern were highlighted in Saxony-Anhalt and Saxony, where nearly 12 percent of all farms are classified as vulnerable.

According to the Bürgel study, only 6.4 to 7.0 percent of companies in Bavaria and Baden-Württemberg are in financial distress.

The latest warnings comes after a string of negative data saw the German government slash the growth forecast for this year.

Economy Minister Peter Altmaier acknowledged a slowdown in growth in recent months as he predicted economic expansion of around 1.5 to 1.6 percent, below his previous forecast of 1.8 percent.

Analysts suggest the downturn has been sparked partly by an ongoing trade dispute between the United States and China and political uncertainty surrounding Brexit.

German exporters have also been dented by a more general slowdown of foreign demand.

A slump in car production was noted as having dragged down levels of exports, caused by new pollution tests that were introduced back in September.

The new WLTP emissions testing regime was brought into effect after the Volkswagen ‘dieselgate’ scandal, which saw millions of diesel motors fitted with “defeat devices” which could identify when they were being emissions tested.

It is believed the slump in the German auto sector was down to some car models not having timely approval for a new registration, forcing manufacturers to throttle production.

While the move to electric cars makes many of the components that automotive suppliers specialise in redundant.

East Germany was highlighted as an area in potential danger due to a high volume of automotive suppliers.

Mr Flöther said: ”In many companies the low interest rates and the good economy have masked that they have no real continuation perspective and no plan for the change in the car industry. That will come to light now.

“At the same time, there is often a lack of family businesses that have grown over decades, which can better compensate for weaker phases.”

Last month it was revealed that the German economy has shrunk for the first time in three years, having last declined in the first quarter of 2015.

Gross domestic product (GDP) contracted in the third quarter compared to the previous quarter by 0.2 percent, according to the Federal Statistical Office.

A separate index showed investor morale in Germany fell in December to 7.2 from 15.6, according to Sentix data released this week.

Despite the gloomy forecast, economists are still maintaining the risk of recession remains low despite weaker economic growth.

The German Institute for Economic Research (DIW) expert Claus Michelsen said analysts should remain “confident” in Germany, while IfW expert Stefan Kooths expects a “recovery after the summer”.

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