Germany’s Start-Up Slowdown Threatens Economic Future

Entrepreneurship Declines Despite Growth Appearances

At first glance, Germany’s corporate landscape appears stable. Each year, the country sees more new companies registered than businesses closing. However, economists warn that this positive net growth conceals a troubling trend: both business start-ups and closures are steadily declining. The result is a stagnating economy lacking the dynamism necessary to adapt to rapid technological and demographic changes.

According to economist Claus Michelsen, Germany’s economic vitality depends on constant renewal. New companies bring innovation, challenge outdated business models, and drive competition. Yet, the number of economically significant start-ups in Germany fell from over 150,000 in 2009 to just 115,000 in 2022. Even with a slight rebound in recent years, there is no sign of a lasting recovery. In contrast, countries in Northern Europe and the Baltics produce far more start-ups relative to population size.

Closures have also dropped, partly due to state intervention during crises such as the pandemic. But this, too, is problematic. Experts emphasize that letting outdated companies fail is not a sign of weakness but a necessary part of economic transformation.

Structural Issues Blocking Growth

The barriers to entrepreneurship in Germany are well known. Bureaucracy is chief among them, with new founders often enduring months of delays and navigating extensive paperwork before they can even start operations. Access to capital is also limited, particularly for those without existing networks or personal wealth. Furthermore, a lack of collaboration between academia and business weakens the pipeline for innovation.

Vivien Wieder, an investor familiar with Germany’s business environment, paints a blunt picture. She criticizes the country for clinging to outdated administrative systems and describes the prevailing attitude toward risk as one of aversion. In her view, German policy prioritizes protecting existing companies from failure rather than fostering the boldness required for new ventures. “We are helicopter parents of the economy,” she says, adding that this creates inefficient “zombie firms” that survive without innovation.

Urban-Rural Divide: Complex Realities

Despite these obstacles, the Global Entrepreneurship Monitor (GEM) reported a record-high start-up rate in Germany for 2024, with many new founders still in the early planning stages. Christian Hundt, a co-author of the German GEM report, notes that part of this growth may be linked to societal shifts. A stronger desire to create meaningful work, rather than simply profit, is motivating more individuals to explore self-employment.

The GEM study also examined where businesses are being founded. Urban areas still dominate, largely because cities concentrate individuals with entrepreneurial traits, better infrastructure, and access to knowledge. However, contrary to expectations, young companies tend to have higher survival rates in rural areas. Lower competition, a focus on manufacturing rather than fast-paced services, and local engagement contribute to this trend.

Still, rural regions face significant challenges. A lack of diverse labor pools and inadequate infrastructure can hamper the ability of start-ups to grow. Policymakers are encouraged to consider returnee programs for people originally from rural areas and to improve digital infrastructure to support remote-friendly businesses.

When Protection Becomes a Problem

Germany’s emphasis on economic stability has often led to the protection of underperforming firms. This cautious approach, while politically popular, limits the reallocation of labor and resources to more productive new ventures. Experts argue that allowing uncompetitive businesses to exit the market creates space for fresh ideas and stronger companies.

The country’s generous crisis support mechanisms during the pandemic helped many businesses survive. But as these programs wind down, there is evidence of a “catch-up” effect in closures. While some interpret this as a sign of failure, economists see it as overdue economic realignment.

A Cultural Shift Still Needed

The cultural perception of entrepreneurship in Germany remains complicated. Failure is still heavily stigmatized, and success is often viewed with suspicion. This mindset discourages risk-taking, particularly among younger people. Investors like Wieder argue that true innovation requires tolerance for failure and a greater focus on enabling second chances.

Efforts to address gender disparity in entrepreneurship have shown some progress. The gender gap in start-up rates is narrower in Germany than in many other countries, due in part to targeted support programs for women. However, challenges remain, especially regarding childcare and tax policies that may discourage women from pursuing self-employment.

Infrastructure and Education Hold the Key

Long-term improvements in Germany’s start-up environment will depend on modernizing infrastructure and investing in education. Better roads, broadband connectivity, and reliable public services are essential for attracting and retaining entrepreneurs—especially outside major cities. Universities and schools also play a critical role in nurturing future business leaders.

While Germany still ranks in the upper middle field globally in terms of start-up conditions, experts warn that the momentum could be lost without decisive action. The ongoing €500 billion infrastructure package is a step in the right direction, but it must be implemented with attention to regional economic needs and long-term impact.

Economic Renewal Demands Policy Change

To regain its edge, Germany must prioritize the creation of new businesses over preserving the old. Policymakers are urged to simplify regulations, increase funding opportunities, and foster a culture that views entrepreneurship as essential to the nation’s economic health. Only by embracing change can Germany avoid falling behind in a rapidly evolving global economy.