A study conducted by the German economic research institute "ZEW" has shown that the number of new companies being established in Germany is steadily decreasing.
According to the institute’s analysis, the number of newly founded companies in Germany has been experiencing a sharp decline since the mid-1990s.
The analysis indicates that in 2023, there was a slight increase of 1.3% to approximately 161,000 new companies, as more startups emerged in the restaurant sector following the COVID-19 pandemic, according to the German news agency "DPA."
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However, the analysis also pointed out a decline in the number of new companies in the industrial sector.
For comparison, in 1995—the year the institute began tracking the number of new businesses in Germany—around 240,000 new companies were founded.
Hannah Hottenrott, an expert at the institute, stated: "A decline in the number of new companies means lower competition, reduced investment, and weaker positive prospects for the German economy." She urged policymakers to make business creation more attractive.
According to the study, the decline is particularly severe in research-intensive industrial sectors, such as mechanical engineering, the chemical industry, and electrical engineering.
More than 50% Decline
The study found that the number of new companies in these sectors has fallen by more than half since 2002, from 1,400 companies to just 625 in 2023.
In less research-intensive sectors, such as the food, textile, wood, and cement industries, the decline was 27%, with the number of new companies dropping to around 5,300 recently. This data was analyzed by the credit agency "Creditreform" using its commercial register records.
One of the key reasons for the decline in new businesses is bureaucracy, according to the analysis.
A survey conducted by the institute, which included around 5,000 companies, found that new businesses spend an average of nine hours per week on administrative tasks—from data protection regulations to reporting obligations. Additionally, a shortage of skilled labor and rising energy prices are further challenges, as explained by researcher Sandra Gottschalk from "ZEW."
Rising Energy Costs
In the chemical and pharmaceutical industries, high energy costs are cited as the main reason for the recent decline in new business formation, according to the study.
In energy-intensive production sectors, such as iron, steel, and precious metals, the number of new companies also fell by more than 10% in both 2022 and 2023. However, numbers have recently recovered in the fields of electrical engineering and mechanical engineering.
Gottschalk noted that the decline in research-intensive industries is particularly concerning, warning: "There is a risk of innovation gaps that could have long-term effects on other sectors of the German economy."
From a broader economic perspective, Gottschalk explained that it does not matter whether innovations come from startups or large companies. She stated: "The fewer new companies emerge with radical ideas, the weaker the competitive pressure on the entire sector
