Corporate dynamism in Germany and Europe has been on the decline for years: fewer and fewer new companies are entering the market, but also fewer and fewer companies are leaving it. The Schumpeterian process of „creative destruction“ in a market economy, which ensures high modernization pressure, a constant renewal of productive capital in the economy and thus also increases prosperity through rising productivity, has come to a standstill. This has now been confirmed by the Bundesbank in its latest monthly report following a statistical analysis of available economic data. Moreover, the process is not limited to Germany, but is widespread in large parts of Western Europe.

One indicator is the development of productivity per hour worked. In Germany, it has fallen dramatically from 4.5% in 1975 to just under 1% today. According to Bundesbank economist Elisabeth Falck, this is a clear indication of a declining „allocation efficiency": the productive factors (investments, capital and people) are "not moving to the place where they are best used“ as they used to, but are remaining in their previous location. The vitality of the market economy is thus wasting away.

Another indicator is the number of new companies entering the market, which increases the competitive and innovation pressure on established competitors. It is also decreasing – most recently even more so due to coronavirus. During this time, weaker companies were kept alive by financial aid from the German government so that they did not have to make way for new competitors. The barrier to market entry became ever higher.

As Bundesbank economist Oke Röhe points out, the fact that the slowdown in economic renewal is not solely due to economic stimuli can also be seen from the data examined. Even in growth phases, only „weak corporate momentum has been observed recently“. He cites the increased uncertainty among market players due to the financial crisis, sovereign debt crisis, coronavirus, and the war in Ukraine. Röhe also points to demographic causes as well as overregulation, excessive bureaucracy, and too little innovation and investment activity.

The development may also have been exacerbated by interest rate policy – at least in recent years: Low interest rates would have prevented unprofitable companies from leaving the market because they could have continued to refinance themselves cheaply, explains Röhe.

Jens Ulbrich, chief economist at the Bundesbank, speaks of the „biggest economic policy challenge since the German reunification“ in view of the weak corporate momentum. The structural issues that have not been addressed for years must now finally move „to the top of the economic policy agenda“. He believes that increasing productivity is vital for the German economy.