| The interplay between business start-ups and closures is a key driver of economic transformation. In the face of geopolitical uncertainties and challenges like digitalisation and sustainability goals, examining these dynamics is becoming increasingly important. Currently, many companies report difficult conditions for doing business in Germany.
The July edition of our ZEW Monthly on “Industrial Dynamics” addresses topics such as technology, competitiveness, and business closures. Blockchain technology is currently used only in selected clusters in Germany, Austria, and Switzerland. Some sectors are seeing a significant rise in closures. In 2023 alone, around 176,000 companies were closed in Germany. On a positive note, the R&D tax credit has become a success story in the machinery industry.
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↗ GERMAN R&D TAX CREDIT TO BECOME A SUCCESS STORY IN THE MACHINERY INDUSTRY
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| Since its introduction in 2020, the government tax credit is increasingly establishing itself as an important tool for research funding in the German machinery industry. A growing number of companies are utilising the ‘research allowance’, appreciating its improved financing options, streamlined access to state funding for research and development (R&D), and flexibility in the use of funds.
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↗ BLOCKCHAIN STILL ONLY A NICHE TECHNOLOGY
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| Companies in Germany, Austria and Switzerland (DACH region) barely use blockchain applications, with less than one per cent of them actively using them. Companies from the financial industry, the information and communications sector and consulting firms are among those using blockchain technology more frequently than average. So-called blockchain clusters are forming mainly in the major financial centres.
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↗ SHARP RISE IN THE NUMBER OF CLOSURES IN THE MANUFACTURING INDUSTRY
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| Empty storefronts and deserted shop premises are increasing – more and more companies are closing and exiting the market. It is not just retailers, consumer-oriented service providers, and restaurants that are having to shut down. The construction and manufacturing industries are also seeing a significant rise in closures. A recent analysis by ZEW, in collaboration with Creditreform, highlights how the industrial base of the German SME sector is strongly eroding.
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| | ↗ START-UP ACTIVITY REACHES NEW LOW
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| The number of start-ups in Germany decreased by 13 per cent in 2022 compared to the previous year. The manufacturing industry experienced an even steeper decline of 16 per cent. The figures are also alarming in research-intensive industries such as chemistry, pharmaceuticals, and medical technology. This is the result of an evaluation of the IAB/ZEW Start-up Panel by ZEW researchers based on a representative survey of a total of around 5,000 young companies.
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While in 2018, 25 per cent of young companies in the manufacturing industry introduced market novelties, by 2022, this figure had dropped to only 21 per cent. Young companies in technology-intensive services and software development also lost innovation strength during the same period. The share of companies introducing market novelties in these sectors decreased from 19 to 15 per cent. When looking at all young companies, this trend is less pronounced, although the share also declined from 11 per cent in 2018 to nine per cent in 2022.
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↗ GERMANY ON THE LONG ROAD TO SMART REGULATION
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| Germany’s lagging position in terms of regulatory attractiveness is evident from the 2023 Country Index for Family Businesses calculated by ZEW. But how and where exactly do inefficiencies persist? A detailed study by the authors of the Country Index, commissioned by the Foundation for Family Businesses, reveals that Germany is – at least in part – on the right track towards evidence-based economic policy. However, introducing more market-oriented incentives could enhance the acceptance of governmental interventions and trim costs.
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↗ LONG-TERM COLLECTIVE AGREEMENTS CAN DESTROY JOBS DURING RECESSION
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| Recently, collective labour agreements resulting in significant wage increases were reached in Germany. However, inflation has since noticeably fallen. In view of the current economic situation, this is not necessarily good news, though: If agreements from pre-crisis times with long contract durations, such as collective bargaining agreements, come up against a recession charactised by low inflation, the risk of unemployment will increase.
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↗ RESPONDENTS DO NOT EXPECT ECB RATE CUTS IN JULY
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| After the European Central Bank (ECB) cut interest rates in June 2024, the financial experts surveyed by ZEW do not expect the ECB to lower interest rates further in July. Instead, they anticipate the next rate cut to take place in September 2024. In general, the majority of participants expect additional rate cuts at every second ECB meeting over the next 12 months. However, the experts’ assessments of future interest rate developments vary widely, indicating a high degree of uncertainty about the further monetary policy path.
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| | | ZEW President Achim Wambach, along with eleven renowned energy economists, is calling for the introduction of regional electricity pricing in Germany. The current practice of setting a uniform national electricity price ignores regional differences in supply and demand, leading to inefficient decisions and high costs. Introducing local electricity pricing could resolve these issues and create a more efficient and sustainable energy system.
This guest article is by Achim Wambach, Lion Hirth (Hertie School and Neon), Axel Ockenfels (University of Cologne and MPI Bonn), Martin Bichler (TU Munich), Ottmar Edenhofer (PIK and TU Berlin), Veronika Grimm (University of Technology Nuremberg), Andreas Löschel (Ruhr University Bochum), Felix Matthes (Oeko-Institute), Christoph Maurer (Consentec and FAU Erlangen-Nuremberg), Karsten Neuhoff (DIW), Karen Pittel (Ifo), and Georg Zachmann (Bruegel), and was first published in the FAZ.
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| | | FOCUSING FUNDS ON REGIONS IN NEED
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| The EU Cohesion Policy is an important element of European solidarity. Its purpose is to offset economic and social differences within the EU by means of targeted investments. However, this multi-billion euro structural policy demands a considerable portion of the EU budget, which is coming under scrutiny in these current times of penny-pinching. What are the current challenges facing EU Cohesion Policy and how can reform be attempted in the next financial framework? Against this background, ZEW economist Professor Friedrich Heinemann presented the final report of a project to the European Union in Brussels on 15 July 2024. In front of around 300 guests, he handed over the study to the Commissioner for Cohesion and Reforms, Elisa Ferreira. German Finance Minister Christian Lindner emphasised the high costs of structural policy and called for existing spending programmes to be systematically reviewed for their effectiveness.
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| | | SCIENTIFIC EXCHANGE ON ENERGY TRANSITION AND CLIMATE CHANGE
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| On 13 and 14 May 2024, around 85 energy and environmental economists from Germany and abroad participated in the twelfth Mannheim Conference on Energy and the Environment at ZEW. For two days, international researchers discussed various topics of energy, climate and environmental economics. This year, the conference focused on climate policies decreasing private and firm emissions, air pollution, energy conservation and behavioural aspects of decarbonization.
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| | | | UPCOMING | |
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| | | RESEARCH WITH AND WITHIN ORGANISATIONS
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| From 9 to 11 September 2024, the conference “Research with and within Organisations” will take place at ZEW. The aim of the conference is to present cutting-edge social science research on studies with and within organisations. It will bring together leaders in the fields of organisation and personnel economics, labour, innovation, and the environment. The focus will be on the internal workings of organisations and how agents (employees, clients) react to experimental and quasi-experimental designs.
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| | | TENTH ZEW/MACCI CONFERENCE ON THE ECONOMICS OF INNOVATION AND PATENTING
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| ZEW is pleased to announce its 10th Anniversary Conference on the Economics of Innovation and Patenting on 26 and 27 September 2024. The aim of the conference is to present novel research and to stimulate discussion among international researchers. The Heinz König Award for the best scientific paper by a junior researcher will be presented during the conference.
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| | | | → CONTACT FOR QUESTIONS OR SUGGESTIONS ON THE CONTENT | |
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| | | | | ZEW – Leibniz Centre for European Economic Research
L7, 1 · 68161 Mannheim
Phone: +49 (0)621/1235-01
E-mail: zewmonthly@zew.de
Website: www.zew.de
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| | | | | Executive Directors:
Professor Achim Wambach, PhD; Claudia von Schuttenbach
Chair of the ZEW Supervisory Board:
Ministerial Director Dr. Hans Reiter
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