In 2019, shortly before the outbreak of the coronavirus pandemic, the profitability of German non-financial enterprises was in good shape. Overall, German enterprises earned an average of 4.3 cent on each euro of sales in 2019, the Bundesbank writes in its latest Monthly Report. This constitutes a pre-tax return on sales of 4.3%, equalling the level recorded in 2018.

Sales growth in 2019 down from previous years

In 2019, non-financial enterprises’ sales grew somewhat more slowly than in previous years, yet at a still-substantial pace of just under 3%. The Monthly Report explains that one reason for this somewhat weaker growth was, amongst other things, reduced demand for export goods as a result of the marked slowdown in the global economy. Strong private consumption in Germany, dynamic housing investment and an expansionary fiscal policy supported enterprises’ order books. On the cost side, enterprises were confronted with additional pension provisions and higher personnel costs, while lower purchase prices for intermediate goods and industrial raw materials took the pressure off enterprises in 2019.

Insolvencies likely to increase in coming quarters

According to the Bundesbank’s experts, the coronavirus pandemic is likely to weigh heavily on corporate profitability this year and lead to an increase in corporate liabilities. There has not been a rise in the number of insolvencies in the corporate sector thus far in 2020, due to the German corporate sector’s sound financial footing at the beginning of the crisis and the government’s financial assistance measures introduced this year, the Bundesbank writes. However, this could change in the coming months. “In view of the exceptional economic slump witnessed in the current year, the number of insolvent enterprises is likely to rise significantly in the coming quarters”, note the Bundesbank’s experts, who also see an increased risk of “zombie” enterprises being kept on life support.