KfW Research: One third of German SMEs see the Ukraine war as a medium to high risk to their business

• Concerns are highest in manufacturing and trade
• Rising energy prices are a major factor
• Recent representative survey by KfW Research

The war in Ukraine, the danger of further escalation and the consequences of sanctions imposed as a result are a source of concern for a good one third of the 3.8 million small and medium-sized enterprises in Germany. These are the findings of a recent supplementary survey to the KfW SME Panel which interviewed more than 2,200 small and medium-sized enterprises with an annual turnover of up to EUR 500 million (survey period 7 to 14 March 2022). Approx. 14 % of businesses believe the conflict is a high risk to their business operations in the coming twelve months. Another 22 % consider the war to be a medium risk. Conversely, that also means that the vast majority of small and medium-sized enterprises currently do not expect the war to have a negative impact or see only minor risks to their operations.

Businesses in the manufacturing and trade sectors are particularly concerned. The shares of companies that regard the Ukraine conflict as a high risk are higher than average (17 % and 22 %). In the services and construction sectors, by contrast, the share is only 12 % for both.

The survey findings illustrate that, in particular, SMEs which also see rising energy prices as a high risk to their business operations are worried about negative impacts on their business situation. Supply chain disruptions are likely to be a further cause for their concerns. Even if only 2.6 % of all small and medium-sized enterprises obtain raw materials and/or inputs from Russia, that share is a significantly higher 11 % among small and medium-sized enterprises in the manufacturing sector.

The loss of Russia as a market for sales is also likely to pose a risk for some SMEs. However, the export links between Germany’s SMEs and Russia are also rather limited. In 2015 just under 11 % of all internationally active SMEs generated turnover in Russia – hardly more than 2 % of all SMEs. That share has likely dropped further since then.

“A good one third of small and medium-sized enterprises see the war in Ukraine and the sanctions against Russia as a significant risk to their own business activities”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “The economic impact of the conflict on Germany is also relevant to SMEs more broadly, and difficult to predict. The high uncertainty is likely to further affect SMEs’ appetite for investment. So it is all the more important to keep our sights set firmly on the goal of creating a digital and climate neutral economy to future-proof Germany.”

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