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Press Release from 2022-10-20 / Group, Group, KfW Research

KfW SME Panel 2021: No time for a breather

  • In 2021, SMEs recovered most of the losses sustained during the coronavirus year
  • Turnover, employment and profitability rose, and equity ratios recovered noticeably in 2021
  • War and energy crisis create major uncertainty in the current year
  • Majority of SMEs believe they can manage higher energy costs

Despite all coronavirus worries, 2021 was a very good year for SMEs. But businesses hardly have time to take a breath. The burdens from the pandemic are fading into the background, but in its place the war in Ukraine and its consequences – above all the energy crisis – are affecting businesses. These are the findings of the KfW SME Panel 2022, which paints a representative and detailed picture of the present situation as well as of the development of small and medium-sized enterprises during the past year.

“The current economic environment is extremely challenging as a result of multiple simultaneous shocks. In dealing with the enormous uncertainty about the further course and accompanying effects of Russia’s war of aggression against Ukraine and the resulting energy crisis, however, SMEs are generally on a strong footing”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Our surveys show that a slim majority of SMEs currently expect to be able to manage the currently high energy prices in the long term as well. But the full effects of the prices are yet to flow through, and for some businesses the financial pressure is already too much to bear. This is coupled by worries over a renewed COVID autumn, generally muted growth prospects, persistently high inflation, rising interest rates and ongoing supply bottlenecks. After a very good year 2021, the current year is marked by shattered investment plans, growing pressure on equity ratios and more difficulties in accessing credit.”

According to the KfW SME Panel, in 2021 SMEs saw their turnovers and employment return to the level of 2019, seemingly unimpressed by the ongoing COVID-19 pandemic. As an employment engine with a 32.3 million-strong workforce, the SME sector is running smoothly. What is more, the importance of small and medium-sized enterprises for overall employment has reached a record high 71.9%. SMEs also recovered much of the sharp turnover losses suffered in the first year of the pandemic, which grew by EUR 242 billion to EUR 4,580 billion in 2021. New investment by SMEs increased by some EUR 10 billion or 6% to around EUR 183 billion.

Other key findings of the KfW SME Panel:

  • The turnover increases also generated good profits for SMEs, with the average profit margin increasing again moderately from 7.3% to 7.4% in 2021.
  • The equity ratio recovered surprisingly quickly and noticeably, almost returning to the pre-crisis level (median equity ratio 31.4%, 2020: 30.1%).
  • After strong adaptation pressure in the first year of the pandemic, SMEs’ investment appetite returned to the very low previous level. Only 38% of businesses carried out investments.
  • Credit finance for investments took a small leap (+13%). Tighter financing conditions are on the horizon for 2022. Bank loans are becoming more expensive and banks more cautious in their lending as a result of monetary tightening (interest rate reversal).

Since the start of the war this spring, SME sentiment has deteriorated significantly. The strong increases in energy prices are the number one uncertainty factor for small and medium-sized enterprises. In a follow-up survey to the KfW SME Panel in September 2022, 62% of SMEs described it as a burden for their business.

Energy costs are likely to remain on a very high level for an extended period of time. It may therefore come as a surprise that a slim majority of SMEs (53% in September 2022) reported being able to manage this over the long term as well. Energy costs hardly play a role for another approx. 13% of all SMEs, for which the question of sustainability has not yet arisen. For yet another 13% of all SMEs, on the other hand, the high energy costs constitute a substantial additional burden that would financially overwhelm them in the long run.

“The pressure is particularly high for energy-intensive manufacturing SMEs”, emphasised Köhler-Geib. “They are feeling the effects of price increases much more strongly. That means the current developments specifically affect a subsegment of SMEs whose importance for employment, turnover and investment across the overall economy is significantly higher than their mere share in the number of enterprises. Should a large number of these enterprises in particular run into financial distress, the consequences would therefore be disproportionately high. It will be necessary to ease the burden on businesses that are particularly affected by high energy prices in order to stabilise the economy, but combined with incentives that support the transformation to net zero.”

The high uncertainty and fear of an economic downturn are causing SMEs to make even greater changes this year to investment projects planned at the start of the year than in the first coronavirus year and in the crisis years 2008/2009. In September only just under half of SMEs reported their intention to implement all projects as planned this year, and 18% of businesses even want to cancel all projects – both record figures. It can be expected that investments worth EUR 59 billion that were originally planned for all of 2022 will no longer be realised. For comparison: in a “normal” year, plans worth just over EUR 40 billion are typically revised.

The KfW SME Panel 2022 is available for download at