German Economy Unravelling: Hospitality Crisis, Jobs Vanishing & Industrial Decline

Submitted by Thomas Kolbe

While the federal government is desperately waiting for the start of the multi-billion euro debt package, the real economy is burrowing ever deeper into the ground. The numbers from the hospitality sector speak a clear language: things continue to go downhill.

On Monday, Chancellor Friedrich Merz visited the six-day congress of the trade union IG BCE (Industrial Union for Mining, Chemicals, Energy). There he emphasised the high importance of social partnership between workers, employers and politics and assured the union that he was well aware of the increasingly difficult situation of many people in the country.

In these days Merz would have done better to visit the German hospitality industry. There, without the glamorous distraction of a functionary congress, he could have seen first-hand the reality of the German economy: The interest in uplifting speeches by the Chancellor among restaurateurs, hoteliers and caterers is likely vanishingly small — business is simply too bad.

Cold shower in the holiday season

The Statistisches Bundesamt (Destatis) delivered catastrophic figures for August for the entire German hospitality industry, i.e., both gastronomy and hotels: Even in the most important vacation month, restaurants, hotels, caterers and snack bars lost a real turnover volume of 3.5 per cent compared with the previous year. Nominally there was still a minus of 0.6 per cent in the overall balance. Also compared with the previous month, July, the hospitality sector lost real turnover of 1.4 per cent.

Such a poor development, of all times in the high-volume holiday months, is a fatal proof that nothing seems to be running smoothly anymore in the German economy — exactly now you would have had to cash in. Here, the until now weak year with a minus of about 4 per cent at least should have offered a small glimmer of hope. Pfft. The summer months turned into a disaster. 

Consumers are suffering under the political framework conditions, the high energy prices, inflation and the labour market, which has long since entered rough seas.

Those who take a look into the engine room of the German economy will quickly find the causes for this crisis. It is the expression of an economic disaster that remains insufficiently described in media and politics. The industrial core of the German economy could not permanently withstand the shockwaves of the Brussels eco-regulators and the gnawing attacks of interest-driven NGOs such as the Deutsche Umwelthilfe.

General decline 

And so it came to pass, as it had to. Starting from its best year 2018, German industry across sectors lost a production volume of almost 25 per cent — an indescribable exodus of firms abroad, countless insolvencies: an economic knockout, delivered by a self-inflicted uppercut. 

Large parts of the economy hang on this industrial foundation as if on an umbilical cord — once it is severed, the service providers, the suppliers, the hospitality industry, tourism plunge too. Roughly 1.3 million jobs in the private sector have disappeared to date.

The German economy is in a veritable clearance sale — in a spiral of deindustrialisation. From July 2024 to today, more than 270,000 jobs have been lost in the manufacturing industry, the metal, electrical and steel industries. At the same time, the public administration expanded by almost 50,000 new jobs this year.

The crash continues

A shrinking working-age population in the private sector must carry the burden for a growing army of welfare recipients and the grotesquely expanding public administration. That cannot work in the long run. Even Merz should be able to grasp that, who obviously did not use his excursion into the world of BlackRock breakfast directors to deepen his study of economic interrelations.

This glaring imbalance — of a growing state apparatus on one side and a rapidly shrinking private economy on the other — no economy in the world can offset. Especially not in the context that the German economy has been continuously losing productivity since 2018. A home-made disaster that is now supposed to be flooded with gigantic credit packages.

In total, it is therefore by no means surprising that going out for a meal, holiday travel, even the evening beer has become a luxury for many. Not inflation alone, but the structural collapse of employment and purchasing power, coupled with a crushing tax and levy burden, are driving people into consumption abstinence. Energy prices remain high, the middle class groans under bureaucracy and ancillary wage costs.

Insolvencies and no end in sight

The catastrophe year for the industry is also reflected in insolvency activity: As the industry association DEHOGA Bundesverband reported, the number of insolvencies in the sector rose by about 27 per cent by summer. Measured against the previous year, it is thus to be assumed that around 2,500 hospitality businesses will exit the market this year.

The situation in the hospitality industry is even more dramatic compared with other crisis sectors: 52.7 bankruptcies per 10,000 businesses — significantly more than in the also strongly shrunk construction or transport sectors. Expression of this misery is the employment restraint that has persisted for more than ten years. The precarious personnel situation, poor remuneration — all this mirrors the crisis in the industry.

Fundamentally, the Federal Republic is heading towards a record year for insolvencies. According to figures from Destatis, company insolvencies in the first half of the year were 12.2 per cent above the previous year’s figure, consumer insolvencies 7.5 per cent higher. This means that probably 25,000 companies will exit the German economy in the current year. The insolvency-related damage is likely to exceed the €60 billion mark. 

VAT to be cut again

And what is politics doing? From 1 January 2026, the VAT on food served in the hospitality industry is to be reduced from the current 19 per cent to 7 per cent, as during the Corona period. But it is foreseeable that the industry, given rising energy and personnel costs, will use these margins to stabilise its own capital base. For customers little will then remain.

Guido Zöllig, President of the DEHOGA federal association, recently issued a clear warning of the dying off of gastronomic diversity. For him the VAT reduction is an essential measure to save the industry. With the numerous failures of restaurants and snack bars Germany — Germany’s cities — lose quality of life. Germany bleeds economically and in its urban structure — also this is an aspect of the general cityscape that politics should openly discuss.

Yet a real policy reversal, an end to regulation, the high fiscal burden, the migration chaos or the grotesque climate regulation — all of which influence consumer behaviour — is not in sight for now. Politics shows no willingness to change course.

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About the author: Thomas Kolbe, born in 1978 in Neuss/ Germany, is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.