Demographic change bolsters SME turnover and investment

• One fifth of current turnover growth from ageing
• Service providers the "demographic winners", manufacturing industry less optimistic
• Significant stimulus for SMEs to invest

In the short term, demographic change is proving an important pillar of growth for German small and medium-sized enterprises. On balance, SMEs are expecting an average annual turnover increase of EUR 24 billion just from demographically induced changes in demand for their products and services - meaning a good 20% of the recently modest SME turnover growth (2014: 3.3%) can be attributed to demographic changes. This is revealed by a new special analysis of the representative KfW SME Panel.

"The debate about demographic change often focuses on the difficulties to be overcome, such as succession issues or skilled labour shortages. But that's not the whole story. The demographic trend also offers many SMEs opportunities for growth," is how Dr Jörg Zeuner, KfW Group's Chief Economist, sums up the situation. "For example, the rising number of older households is creating demand for products and services from which SMEs are currently profiting below the line".

The progressive ageing of society is bringing about shifts in consumption within the economy as a whole. For example, older households are spending more on health and the home, but less on clothing and mobility. At the same time, the "consumption footprint" of those in retirement is expanding. First, the share of older people in the population is increasing year on year. Secondly, they have more purchasing power than the previous generation. That is why the increased consumer expenditure seen over the past ten years can be attributed, almost in its entirety, to older households.

Among SMEs, demographic changes in sales markets not only produce winners, but they are in the clear majority. One in five companies (around 690,000) anticipates higher turnovers, while one in ten (about 320,000) fears losses. The turnover expectations deriving from demographic change differ significantly from sector to sector. The pessimists are to be found mainly in the manufacturing industry, whereas confidence is especially strong in the services sector.

Companies facing a drop in demand for their products and services have to act quickly. Once customers and sales have been lost, it's not easy to regain them. Around half of the SMEs that are "demography losers" see it as key to revise their current offerings. Almost as many set great store by adjusting their marketing.

Not all the companies concerned react to demographic change in their sales markets by making investments aimed at either preventing turnover losses or meeting rising demand. Nonetheless, 20% of current investment growth among SMEs results from adapting to patterns of consumption that have changed for demographic reasons.

"At present, demographic trends are triggering close to EUR 3 billion in investment every year," Dr Jörg Zeuner says. "This means that SMEs, benefiting from low interest rates, have now climbed out of the trough. However, the proportion of companies making investments has been stagnating at a low level for a good many years. More investment stimuli are urgently needed".

The study "Demographic change bolsters private consumption and SME growth" is available at: www.kfw.de/fokus.