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An analysis of commercial register data shows that start-up activity in Germany has plummeted this year after the corona pandemic ended in 2022.
In recent years, Germany has experienced an unprecedented economic roller coaster ride, ranging from the corona pandemic to inflation. But while the pandemic has put many businesses to the test, and even forced some to close, inflation has managed to affect startup activity in the country in a very different way. A detailed analysis of commercial register data over the past five years sheds light on this remarkable trend.
A look at the data
The commercial register data show a significant decrease in the number of company start-ups in Germany since 2022. In particular in the years 2019, 2020 and 2021, the number of start-ups remained relatively stable, with fluctuations being recorded in the various calendar weeks. In 2019, the year started with 2,880 foundations in the 20th calendar week, but reached a low point of 2,354 foundations in the 25th calendar week before it rose again.
The post-pandemic tipping point
However, times changed after the end of the Corona pandemic in 2022. While the economic outlook was initially optimistic, analysis of the data for this year shows a striking void in start-up activity. Only 1,878 and 2,414 start-ups were recorded in calendar weeks 24 and 23, which represents a drastic decline compared to previous years, even if these figures do not include the start-up of associations. Post-pandemic uncertainty, coupled with economic uncertainties and rising inflation, seem to deter potential entrepreneurs.
Inflation as the new stumbling block
While the Corona pandemic has undoubtedly had a significant impact on business activity, it is worth noting that inflation has emerged as a new factor negatively affecting start-up activity in Germany. Inflation can increase the cost of starting a business as commodity, rent and labor prices rise. This could make budding entrepreneurs reluctant to start new businesses as economic uncertainty and rising costs pose a significant risk.
Outlook and challenges
Current data suggests that start-up activities in Germany are facing serious challenges. As the economic landscape continues to be characterized by uncertainty, it will be crucial for governments, business associations and companies alike to devise strategies to encourage entrepreneurship and support budding founders. The effects of inflation on start-up activity illustrate the need for a holistic approach to ensure economic stability and growth in Germany.
Overall, the analysis of the commercial register data makes it clear that start-up activity in Germany is influenced by a variety of factors, from the pandemic to inflation. The coming months and years will show whether and how Germany can overcome these challenges in order to stimulate start-up activities in the country again.
| Year | KW 20 | KW 21 | KW 22 | KW 23 | KW 24 | KW 25 | KW 26 | KW 27 | KW 28 | KW 29 | KW 30 | KW 31 | KW 32 | KW 33 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2880 | 2746 | 2148 | 2708 | 2157 | 2354 | 2793 | 2785 | 2801 | 2770 | 2714 | 2770 | 2596 | 2692 |
| 2020 | 2697 | 2069 | 2625 | 2121 | 2237 | 2807 | 2840 | 3048 | 3034 | 2735 | 2954 | 2861 | 2682 | 2809 |
| 2021 | 3458 | 2744 | 2857 | 3467 | 3286 | 3266 | 3334 | 3181 | 3278 | 3068 | 3219 | 3046 | 2939 | 2992 |
| 2022 | 2344 | 2299 | 2708 | 2414 | 1878 | 2345 | 2372 | 1993 | 2138 | 2111 | 2431 | - | - | - |
| 2023 | 1692 | 1821 | 1327 | 1861 | 1604 | 1791 | 2235 | 1749 | 1703 | 1888 | 1755 | 1128 | 2294 | 819 |
Data sources: Commercial Register 2019-2021, StartupDetector Newsletter 2022-2023 (excluding associations).
Note: Data missing for week 31-33/2022
The GEM country report Germany 2021 presents pleasing results regarding start-up activities in 2021 and their connection to the COVID-19 pandemic. The start-up rate, measured by the total early-stage entrepreneurial activity (TEA), has increased significantly compared to the previous year. This could be due to a positive response from business and the adaptability of those looking to start a business during the pandemic.
Start-up rate at the second highest level since 1999
The TEA rate, which represents the proportion of 18-64 year olds in Germany who have founded a company or are in the process of founding one, reached the second highest value in 2021 since the survey began in 1999 – 6.9%. This represents an increase of 2.1 percentage points compared to the previous year (4.8%). This increase suggests that, despite the ongoing uncertainties due to the pandemic, the willingness to start a business has increased in Germany.
Pandemic as driver for new business opportunities
Interestingly, more than a third of the TEA founders surveyed appear to indicate that the COVID-19 pandemic has opened up new business opportunities. This makes it clear that in the midst of the crisis, entrepreneurial opportunities can also arise that lead to new start-ups. In 2020, that proportion was even lower (a quarter of TEA startups were based on pandemic-related opportunities).
More focus on digital sales channels
Although around 76% of TEA founders in Germany have set up their sales channels digitally, the report shows that there is still room for further progress in the field of digitalization. In particular, cooperation between established companies and young, up-and-coming start-ups could lead to a win-win situation. Digital sales platforms and the customers of established companies could offer young companies faster market access.
Gender differences in start-up activity
An interesting aspect highlighted in the report concerns gender disparities in start-up activity. This shows that the gender gap, i.e. the difference between the start-up activities of men and women, was reduced during the COVID-19 pandemic. This applies above all to the prospective founders (nascent entrepreneurs), whose proportion is equalizing. The results indicate that women are more likely to intend to start a business, but are less likely to put them into practice than men.
Measures to promote start-ups by women
The report proposes various measures to further reduce the gender gap and to promote the start-up activities of women. This includes the expansion of childcare options, the promotion of women in business and STEM subjects and the presence of successful female founders as role models. Access to venture capital for female founders could also be improved, especially in the technology-oriented area.
Conclusion: increase in start-up activities despite the pandemic
The GEM country report Germany 2021 shows that the start-up rate in Germany increased in 2021 despite the ongoing COVID-19 pandemic. This could be due to an increased adaptability of the entrepreneurs, the identification of new entrepreneurial opportunities and the positive reaction of the economic policy. Gender differences in start-up activity have also narrowed during the pandemic, indicating increased support for start-ups by women. In order to further support this trend, targeted measures could be taken to strengthen the framework conditions for women in the start-up world.
For IT freelancers, finding a job in Germany is currently difficult. A combination of inflation, economic recession and ever-increasing demands from clients are presenting more and more IT freelancers with challenges. In this situation, even experienced IT professionals face unfamiliar obstacles and have to deal with the stability and future of freelance work in the IT field.
1. Inflation and uncertainty:
Inflation of 6.2% in Germany, caused by the ongoing war in Ukraine, has far-reaching economic effects. For IT freelancers in particular, this means the need to offer their services at prices that reflect the increased costs. The general uncertainty about future developments means that companies act more cautiously and projects are awarded more hesitantly.
2. Recession at home:
Germany is already in an economic recession for the third quarter in a row, which caused the gross domestic product to shrink by 0.3%. The reluctance of companies when it comes to new projects and investments has a direct impact on the demand for IT freelancers. With shrinking project budgets, outside experts are often the first to be crossed off the list, leading to a noticeable slump in orders.
3. Increasing demands from clients:
The demands of clients have skyrocketed in recent years - a development that poses particular challenges for IT freelancers. The expectation of the "perfect solution" is increasing, which raises the hurdle for many freelancers. Those who do not meet all the required criteria have a harder time acquiring orders.
4. Challenges for startups:
The once-bubbly startup scene faces its own difficulties. The bursting of the startup bubble and difficulties in raising or follow-up funding are impacting the availability of projects once offered by burgeoning startups.
5. The Impact of Rising Interest Rates:
Increasing interest rates have created a domino effect. Companies are more reluctant to make investment decisions, which is hampering demand for IT projects. At the same time, startups are also affected by this development, as financing options are narrowing.
In this demanding phase, flexibility is of the utmost importance for IT freelancers. The ability to adapt to changing market conditions, close cooperation with clients and the targeted search for niche markets could offer ways of asserting oneself in this challenging economic situation. Continuous training and the willingness to rethink existing business models are indispensable. The freelancer community is entering a period of change where adaptability and the spirit of innovation are more important than ever.
Employment in Germany continues its positive trend, as announced by the Federal Statistical Office (Destatis) in its current press release No. 326. In Q2 2023, around 45.9 million people were employed in Germany. Compared to the previous quarter, the seasonally adjusted number of employed persons recorded an increase of 67,000 persons (+0.1%). Compared with the same quarter of the previous year, growth of 0.7% was observed. This development reflects an overall positive economic momentum, although the pace of growth is slowing compared to the previous quarter.
The increase in employment is also reflected in the non-seasonally adjusted view. Compared to the previous quarter, the number of employed persons increased by 240,000 persons or 0.5%. This increase is common in the spring, due to the revival of outside occupations. However, this year's spring revival was much more subdued, with a 0.5% increase, than last year's 0.7% growth.
Positive development in service sector
The service sector made a significant contribution to the increase in the number of people in employment. In particular, public service providers, education, health (+0.9%), trade, transport and hospitality (+0.7%) and business service providers (+0.9%) recorded significant increases. Employment in information and communication also grew dynamically by 2.9%. The financial and insurance services sector, on the other hand, recorded a slight increase of 0.1% after years of downward trend.
Labor volume and employment types
The average hours worked per employed person increased slightly by 0.1 hours to 319.1 hours. The total economic volume of work, which takes into account the increased number of employed persons and hours worked per employed person, increased by 0.8% to 14.6 billion hours. The average number of hours worked per employed person increased by 0.1% to 319.1 hours.
The positive 0.7% year-on-year growth in employment was largely driven by employment subject to social security contributions and employees in marginal jobs. The number of employees rose by 0.8% to 42 million persons, while the number of self-employed persons, including family workers, declined by 0.3% to 3.9 million persons.
European comparison
In a European context, employment increased by an average of 1.3% in the 27 European Union (EU) countries and by 1.5% in the euro area compared with the same quarter last year, which is stronger than the increase in Germany.
Conclusion and outlook
The development of employment in Q2 2023 shows continued positive momentum in the German labor market. Despite somewhat slower growth compared with the previous quarter, the upward trend remains year-on-year. The service sector in particular is contributing to the increase in employment, while the manufacturing sector also posted slight gains. The revival of the labor market is also apparent in the European context. However, possible effects of international events, such as the war in Ukraine, should be kept in mind as they could impact future developments. The strength of employment thus remains an important indicator of Germany's overall economic health.
Note: The results presented here are based on preliminary calculations by the Federal Statistical Office (Destatis) and could be revised by further data updates.