Young self-employed have not yet fully recovered from the coronavirus crisis

• Entrepreneurial activity increased again in 2021
• Turnovers are not yet back to pre-crisis levels
• 62 % of young self-employed expect higher turnover at year-end
• Supply bottlenecks make them pessimistic

Start-up activity in Germany in 2021 made up for the decline in the year 2020 and returned to the pre-pandemic level, with 607,000 new businesses founded, according to a preliminary evaluation of this year’s KfW Entrepreneurship Monitor. But the disruptions continued to be felt in the second year of the coronavirus. The new KfW flash poll on the “Gründerplattform” start-up platform (www.gruenderplattform.de) clearly showed that while start-ups were launched on schedule slightly more often in the second year of the pandemic, long delays of more than half a year were significantly more frequent than in 2020, reaching a rate of 17 %. Whereas in 2020 entrepreneurial activity was most typically delayed by uncertain business prospects and because the basis for the business ceased to exist, changes to business models and financing problems were the most common reason for delays in the realisation of start-ups in 2021.

The coronavirus crisis has left an imprint on young self-employed persons. This is evident from their turnovers, among other things. Half of those who founded their business before 2020 are still generating lower turnovers than before the coronavirus crisis. That means their business activity has not yet fully recovered. Overall, however, the majority of young self-employed persons (62 %) are optimistic about the rest of the year and expect to grow their turnover by year-end.

Despite the optimistic outlook on turnover development, one fifth of the young self-employed see an increased risk that economic constraints may force them to give up their business before the end of the year. They believe that much will depend on the further course of the coronavirus pandemic.

Another cause for pessimism among young self-employed persons is that the international movement of goods has stalled as a result of pandemic restrictions, resulting in supply bottlenecks and price increases. The escalation of the war in Ukraine has further aggravated the situation. By their own accounts, the bottlenecks affect 40 % of young self-employed persons and 25 % of prospective entrepreneurs. The consequences may be disastrous for self-employment. Higher prices can hardly be passed on without losing customers and greater effort on procurement means less time for attending to and attracting customers. Thus, young self-employed persons see a heightened risk that economic constraints may force them to give up.

“The coronavirus crisis continues to be a challenge for many young self-employed persons”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “In addition to pandemic-induced disruptions to the international movement of goods, the escalation of the war in Ukraine has worsened the economic uncertainty. The risk that further material shortages, higher energy prices and looming consumer spending hesitancy put an end to their turnover optimism is very high. So it is all the more important for them to be as flexible as possible and adapt business models where necessary, just as many entrepreneurs have already done in the past two crisis years.”

The current study can be downloaded from www.kfw.de/fokus