Coronavirus crisis in the SME sector: Return to full profitability is still far off

• Representative survey by KfW Research at the beginning of June
• 60% of SMEs expect to feel the impact of the crisis for a long time
• Turnovers dropped by EUR 88 billion in May, EUR 250 billion lost since March

Thanks to progress made in containing the spread of the coronavirus, Germany has now been able to relax the measures introduced in the second half of March, such as business closures and distancing requirements. Nevertheless, some 2.3 million small and medium-sized enterprises (60%) expect to feel the consequences of the crisis for a long time. That was one of the findings of the second representative supplementary survey conducted by KfW Research on the basis of the KfW SME Panel in early June 2020. On average, these enterprises expect their business situation to return to normal only in about 8 1/2 months – so around March 2021. Seven per cent of SMEs responded that they were already back to their pre-crisis level at the time of the survey. But this positive development contrasts with 9% of SMEs that do not expect to be able to return to their pre-crisis level ever again.

The drop in turnovers, above all, reflects the full force with which the coronavirus pandemic has hit the SME sector. In an initial flash poll among SMEs, KfW Research had already identified losses in turnover of at least EUR 75 billion for March. In May the losses amounted to at least EUR 88 billion. It can be assumed that the impact was similar in April. For the three-month period of the coronavirus crisis, the combined loss in turnover across the SME sector as a whole can therefore be estimated at around EUR 250 billion, roughly 5% of the typical total annual turnover of Germany’s SMEs, which is roughly EUR 4,700 billion.

In May, 61% of Germany’s small and medium-sized enterprises suffered coronavirus-induced losses in turnover (114,000 SMEs, or 3 percentage points more than in March). On average, businesses lost around half (46%) the turnover typically expected in May (March: 53%). That was around EUR 45,000 per affected business (March: EUR 39,000).

The range of turnover losses remains very broad. Across the various segments, other services such as care and education providers recorded the lowest average turnover loss, at approx. EUR 20,000. In contrast, May turnover losses of manufacturing SMEs averaged EUR 169,000. Larger enterprises with more than ten employees suffered average turnover losses of EUR 276,000, 14 times more than smaller businesses (up to ten employees: EUR 19,100).

“The coronavirus crisis has a grip on Germany’s SMEs. The losses in turnover are serious and probably amount to a good EUR 250 billion in the months of March to May. The path out of the coronavirus slump will be long and arduous”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Looking ahead, though, we can be cautiously optimistic. With the government’s comprehensive coronavirus response and progress made in containing the spread of infections, and with the adjustments companies have made to their business models and product assortments, Germany is on a good path. What matters most now is to have faith in a sustainable recovery. The Federal Government’s new economic stimulus package provides welcome impetus for this.”

But Köhler-Geib also stressed the need to closely monitor the development of SMEs’ liquidity position. “A large number of small and medium-sized enterprises continue to feel great pressure on their liquidity, so the threat of insolvency has not been averted despite the relaxation of coronavirus restrictions.” If the current situation persists without improving (counted from 1 June 2020), 45% of all SMEs will run out of liquidity in two months. In March, that share was 51%. Another 24% of enterprises at least have enough liquidity for two to six months (March: 22%). Six per cent of SMEs have liquidity reserves of up to a year before facing the prospect of having to stop trading (March: 7%). A share of 25% of all SMEs declared generally having sufficient liquidity reserves, a 6 percentage-point increase on the previous survey.

The database:
The current analysis by KfW Research is based on a supplementary survey performed as part of the KfW SME Panel. The Financial Services Division of GfK SE conducted a representative survey of small and medium-sized enterprises with up to EUR 500 million annual turnover to gauge the current impact of the coronavirus crisis on behalf of KfW Group between 2 and 12 June.

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 3,000 enterprises were evaluated. 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 on SMEs.

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