Bureaucracy and Recession Are Deterring Entrepreneurs from Starting a Business
ResearchZEW Study Shows: Start-up Activity in Germany Remains Weak
The number of business foundations in Germany is falling dramatically. According to calculations by ZEW Mannheim and Creditreform Wirtschaftsforschung, only around 161,000 new companies were founded in 2024 – the lowest number in decades. For comparison: Between 2015 and 2021, the average was still around 168,000 business foundations per year, and in the early 2000s it was even over 200,000.
“The double burden of economic crisis and bureaucracy is putting a massive brake on start-up activities,” says Patrik-Ludwig Hantzsch, spokesman of the Verband der Vereine Creditreform. According to Hantzsch, the general conditions have been deteriorating for years: High energy costs, a shortage of skilled labour and growing bureaucracy are preventing new businesses from starting up and growing and are blocking innovation. Geopolitical uncertainties have also recently dampened the willingness to set up a company.
Shrinking industrial base
The manufacturing sector is particularly affected. With only around 5,000 new business foundations in 2024, start-up activity was down by 38 per cent compared to 2016, when the number was still a good 8,000. In the research-intensive sector of the industry, the number of new firms dropped by 20.8 per cent compared to 2023. “Industry and its capacity for innovation are the big losers of the reform standstill in Germany,” warns Hantzsch. “The number of manufacturing companies is shrinking, jobs are being lost, and there is too little investment in the future.”
ZEW researcher Dr. Sandra Gottschalk also views this development critically: “One result of the decline in research-intensive industrial start-ups could be that fewer innovative products will come onto the market in future. This is already weakening the competitiveness of the German economy.”
Construction industry under pressure
Declines are also evident in the construction industry. In 2024, the number of new firms there fell by 12.7 per cent to only around 14,700 – a good 5,500 fewer than in 2019. The main reasons for this development are increased raw material and energy costs, higher interest rates and the continuing uncertainty about economic development.
Hopes resting on IT services
Hopes for a renewed upturn in start-up activity are pinned on the areas of technical services and ICT (information, communication and network technologies). The increase in business foundations between 2016 and 2021, for example in the field of artificial intelligence (AI), provided new economic impulses. However, the recession is also leaving its mark here: After having grown strongly in previous years, the number of start-ups is falling again – in the software sector, for example, by currently 20 per cent. “Although digital technologies are gaining in importance, they are not immune to the weak economy,” explains Gottschalk.
Focus on research funding
In order to revitalise start-up activity, ZEW and Creditreform are calling for targeted support for innovative companies. “Distributing untargeted funding broadly is not very effective. Tax incentives for investments in research and development and a focus on start-ups with genuine innovation and growth potential would make more sense,” adds Hantzsch.
Methodology
The analysis covers data on start-ups that are considered to be economically active to a sufficient degree due to their legal form or headcount and are regarded as legally autonomous entities. Some of the current start-up figures have been extrapolated due to start-up cohorts for which data have not yet been fully recorded.
