KfW SME Panel 2017: SMEs more important as employers than ever before

• For the first time, SMEs employ more than 70% of the workforce – service sector is fuelling the upswing
• Prospect of interest rate reversal is keeping credit demand on a high level
• Equity ratio has grown again to reach the 30% mark
• Transition to a service society is limiting productivity growth
• Sound domestic business cycle and innovative spirit is prompting fewer SMEs to invest more

SMEs continue to drive economic and employment growth in Germany. Their turnover increased by 3.9% in 2016, the highest rate in five years, and profit margins averaged a good 7.3%, just as the previous year. As employers, small and medium-sized enterprises are more important than ever. In 2016, the number of workers employed by SMEs increased greatly by another 1.46 million (4.6%). SMEs currently employ a record 30.9 million workers. The share of SMEs in employment has passed the 70% mark for the first time (70.4%). By comparison, large enterprises and the public sector reduced their workforce on the previous year once again, this time by 432,000 workers. These are the findings of the representative KfW SME Panel 2017.

The industrial transformation is leaving deeper and deeper traces in the SME sector, explains Dr Jörg Zeuner, Chief Economist of KfW Group: “SMEs are also affected by the transition to a service society. The main drivers of employment growth in the past years are quite unmistakably knowledge-intensive service providers. They alone account for three fourths of all jobs created in the SME sector since 2010. Overall, the number of workers in knowledge-intensive services has grown by 2.4 million to now 9.9 million. This figure can be expected to continue growing in the future as well. Digitalisation and strong domestic demand favour service providers.”

SMEs’ willingness to invest continues to stagnate as the share of investing enterprises remains at 42.4%, nearly unchanged on the year 2015. However, the volume of new investments has grown by EUR 8 billion to EUR 169 billion, mainly driven by capacity expansion. Demand for investment loans has grown continuously since 2012 (+1.5% to EUR 134 billion). The favourable financing environment has nurtured this trend. Large SMEs in particular are demanding more credit. They are using bank loans slightly more often as sources of finance (their share of investment finance: 30%). Overall, however, SMEs continue to rely heavily on their own resources (50%).

SMEs have lost some ground in international business. While they still accounted for half of Germany’s exports in 2012, their share in 2016 was only 45%. SMEs are falling behind especially in markets outside Europe, where they lost some EUR 8 billion in turnover within a year.

Open markets and a strong and stable Europe are necessary in order to tackle the existing structural challenges, in the opinion of Dr Jörg Zeuner. “Germany’s prosperity crucially depends on open markets and close international integration. We should therefore continue to stand up for free and fair competition. At the same time, we need more investment at home, we must return to our old investment strength, renew our capital stock, and strengthen our education system. Digitalisation should be embraced as a challenge and opportunity at all levels. Not least, we need more start-ups as a source of innovation”, said Zeuner.

KfW SME Panel