KfW Research: Energy price rises due to war and sanctions are hitting SMEs across the board

• Representative special survey by KfW Research in May 2022
• 2.1 million SMEs affected since the start of the year
• Four in ten businesses have already passed cost increases on to customers by raising prices

Many SMEs in Germany are already clearly feeling the consequences of the war in Ukraine. In the months from January to April 2022, energy costs were a good one and a half times as high as in the same period last year (+54 %), as shown by a recent supplementary survey to the KfW SME Panel (survey period: 2-7 May). That means some 2.1 million small and medium-sized enterprises in Germany are facing higher energy costs as a direct consequence of the war and the sanctions it provoked. On average, companies are paying 41 % more for energy.

A look at the individual economic sectors shows that manufacturing has been hit hardest (59 % of businesses). Manufacturing is also where most of the energy-intensive enterprises are situated. This is followed by services (54 %), retail (51 %) and construction (42 %).

Given the rising energy prices and risks for Germany’s energy security from the country’s high dependence on Russian gas and oil imports, many enterprises are taking measures to reduce their energy consumption or switch to renewable energy sources. From the start of the year up to the end of April, more than half of all SMEs (54 %) already implemented changes to save energy. Around 20 % of enterprises invested in electric mobility and another 20 % signed a long-term supply agreement for electricity from renewables. Ten per cent of companies already invested in generating electricity and heating from renewables, and the same proportion invested in improving their energy efficiency.

The majority of SMEs (51 %) believe they are capable of shouldering the burden from energy costs on the level of early May 2022 in the long term as well. Energy costs make no difference for another 16 %. What surely plays a role here is that energy costs make up only a small portion of total costs across the breadth of the SME sector. Besides, the price increases in the energy market have probably not filtered down to SMEs in full.

However, the primary reason for their assessment is likely the fact that many of them pass energy cost increases to their customers in the form of significant price increases. Thus, four in ten SMEs have raised the prices of their own products and services in response to energy cost increases since the beginning of the war. A further one third plan to do this by the end of the year 2022. One in five businesses are passing the increased energy costs on to their customers in full.

“Already many SMEs are clearly feeling the energy price increases resulting from the war in Ukraine. But most have remained calm and expect to be able to shoulder these additional costs for now”, summarised Dr Fritzi Köhler-Geib, Chief Economist of KfW, adding: “The further development of the Ukraine war and its impact on energy prices, however, are creating high uncertainty. Above all, a Russian natural gas embargo, which cannot be ruled out, could further drive up costs. Besides, higher energy prices also lead to a decrease in consumers’ purchasing power, which will probably also be reflected in SME turnover in the medium term. We are clearly being confronted with the fact that Germany must become more independent of fossil fuels to achieve greater energy security. We need to expand renewable energy more quickly and invest more in energy efficiency. We need to do this not just to meet Germany’s climate neutrality targets but of course also for an affordable, independent and secure energy supply. SMEs are an important actor in this scenario as more than two thirds have reduced their energy consumption or switched to renewable energy since the start of the year. In this way businesses can reduce cost pressures and their dependence on fossil fuels at the same time”, concluded Köhler-Geib.

The current analysis by KfW Research can be retrieved from www.kfw.de/fokus