Coronavirus crisis in Germany’s SME sector: Under pressure from lockdown in January 2021, but situation is steady

• 2.6 million SMEs are grappling with the impact of the crisis
• Turnover losses and liquidity shortages affect fewer enterprises than in the first lockdown
• SMEs still expect the consequences of the crisis to linger, but equity and liquidity position remains steady

The hard lockdown that has been in place since mid--December 2020 is affecting the day-to-day operations of many SMEs and self-employed persons. According to a representative survey conducted by KfW Research on the basis of the KfW SME Panel at the end of January 2021, some 2.6 million small and medium-sized enterprises (68%) are currently struggling with the consequences of the coronavirus pandemic. In January, the impact of the restrictions thus affected around 220,000 more businesses than in the previous survey in September 2020, but significantly fewer than during the first lockdown of April 2020 (450,000). At the time, 80% of SMEs were affected by the coronavirus crisis.

Almost all sectors of the economy currently report that they are much less affected than last spring. In addition to manufacturing (71% compared with 84%) and construction (down to 55% from 75%), this includes – remarkably – service businesses (67% as opposed to 80%). Only medium-sized wholesalers and retailers are feeling a similar impact as in the first lockdown (83% vs. 84%).

Many enterprises have learned lessons from last year and made creative and flexible changes to their business models. Born of necessity, this inventiveness is now paying off. To be sure, turnover losses resulting from declines in demand remain the most challenging of all possible lockdown consequences for businesses. The share of enterprises affected by such losses, however, has fallen noticeably to 45%, down from 58% in April 2020. At the same time, liquidity bottlenecks currently pose a problem for a smaller proportion of SMEs (33%) than in the spring of last year (44%). But one in three SMEs report having sufficient cash to ride out two more months at the most (51% in April). If the current situation does not change, another 35% of SMEs still have sufficient liquidity for two to twelve months before they are forced to close down – which is still a comfortable buffer. Twenty-nine per cent even report having sufficient reserves in general (19%).

“Whereas the hard lockdown caught SMEs off guard last spring, companies entered the current lockdown better prepared”, summarised Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Many have learned from the experiences of the previous year and changed not just their business models but evidently cost structures as well. The economic recovery in the summer and autumn was probably helpful in replenishing liquidity reserves. Not least, the many state support measures are helping to prop up companies’ liquidity during the current lockdown.”

Thus far, the current lockdown does not yet appear to have put further pressure on companies’ capital structure. There does not appear to have been a further deterioration in assessments of their equity base from last autumn. Around one third of SMEs currently estimate their equity ratio to be below the pre-crisis level. As their equity base was extremely solid on average before the crisis, the risk of overindebtedness across the overall SME sector therefore remains manageable.

According to the current KfW survey, a large portion of businesses (47%) believe that the consequences of the crisis will stay with them for a long time. On average, these enterprises expect their business activity to return to the pre-crisis level in around 10.3 months – provided the further fight against the pandemic is successful. That would be around November 2021. However, 17% of small and medium-sized enterprises do not expect to ever return to the pre-crisis level. This is a clear increase by 8 percentage points from June 2020, when businesses were first asked to make a prediction. Another element of the overall picture is that almost one third of all SMEs in Germany have so far not been affected by the coronavirus crisis (29%).

“It makes me optimistic that our current survey paints an almost surprisingly steady picture of the situation in the SME sector. This is a testament to the adaptability and inventiveness of enterprises in Germany. But it also shows that the increasing duration of the restrictions due to the coronavirus crisis is creating uncertainty among a growing number of enterprises as to whether they can stay in business”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “This would prolong enterprises’ already enduring reluctance to invest and reduce the innovative strength and future competitiveness of Germany’s business landscape.”

The current supplementary survey by KfW Research on the impact of the coronavirus crisis on SMEs is available at www.kfw.de/fokus

The database:

The current analysis by KfW Research is based on a supplementary survey performed as part of the KfW SME Panel. For the supplementary coronavirus survey, the Financial Services Division of GfK SE surveyed representative small and medium-sized enterprises online on the current impacts of the coronavirus crisis on behalf of KfW Group during the period from 12 to 22 January 2021. All enterprises that had already participated in an earlier wave of the KfW SME Panel and had provided a valid email address were surveyed. Responses from a total of 2,800 enterprises were evaluated in the current survey. As the supplementary survey was linked to the main database of the KfW SME Panel, its results provide a representative picture of the current coronavirus impact.