KfW SME Panel 2024: The business environment puts pressure on companies

• SMEs see turnover decline
• Small and medium businesses hire disproportionately many workers
• Widening gap between small and large businesses

The challenging economic situation is leaving its mark on German SMEs. Businesses have seen their economic situation worsen over the last year. The total turnover of small and medium businesses dropped in nominal terms by EUR 246 billion, or 4.6%, in 2023. Price rises were unable to offset the decline. In real terms, turnover was even 10% down.

Those are the findings of the SME Panel, which KfW Research has published since 2003. The Panel analyses businesses with a turnover of up to EUR 500 million. The survey was conducted between February and June 2024, with an additional special survey in September 2024.

A total of 35% of businesses expect their turnover to decline over the current financial year too, while only about 15% reckon that turnover will rise. Medium-term expectations up to 2026 are also gloomy. An unprecedented 29% of businesses expect their turnover to drop over the next three years. 24% forecast an increase in turnover.

In spite of the difficult economic situation, it is encouraging to note that the profitability of SMEs is holding up well, with an average overall profit margin of 7%. The gap between companies is widening, however, with micro-businesses in particular struggling with falling profits.

“Many economic indicators point to a widening divide between smaller and larger SMEs,”

stated Dr Michael Schwartz, project manager of the KfW SME Panel.

“Larger businesses are better placed to address the challenging economic climate than smaller ones.”

One positive factor is that the SME sector continues to drive employment in the German economy. In 2023, the workforce grew by about 494,000 meaning that a record 32.83 million people worked for small and medium businesses. Both the absolute increase and the percentage increase in the workforce were higher in the SME sector last year than in the economy as a whole, making the sector increasingly important as an employer.

The difficult economic environment impacted adversely on companies’ equity buffers. The average equity ratio fell by 0.6 percentage points to 30.6%. Seen in a historical context, this is still an excellent figure. If we look at the situation in more detail, however, we can identify problems. The percentage of businesses with an equity ratio under 10% has increased from 25.1% to 33.6%. 12% of companies recorded a negative equity ratio – twice as many as in 2022. By contrast, the percentage of businesses with a very high equity ratio of 30% or more declined by more than 13 % to 37.6 %.

Additional investigation by the SME Panel also indicates that businesses are less willing to invest. The percentage of businesses with investment projects fell by 4 percentage points to 39%. The percentage of businesses realising investment projects as planned also stood at a below-average 60% in 2023.

In 2023, only 368,000 SMEs spoke to banks and savings banks about investment loans, marking an all-time low. The percentage of successfully negotiated investment loans also dropped tangibly. The main reason was that no agreement could be reached between the lenders and businesses on interest rates.

“German SMEs have always been praised in the past for their economic stability. Broadly speaking, this is still true. Cracks are, however, appearing in the foundations, primarily as a result of the general economic situation,”

said KfW economist Dr Michael Schwartz.

You can find the complete SME Panel at KfW-SME Panel | KfW

The KfW SME Panel (KfW-Mittelstandspanel) has been conducted by KfW Research since 2003 and provides a representative dataset of small and medium-sized enterprises in Germany. It is the only representative survey of the entire German SME sector, from solo entrepreneurs to large SMEs, making it the most important source of data on issues relevant to the SME sector. The basic population of the KfW SME Panel includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million. A total of 9,556 SMEs took part in the most recent wave. The main survey of the 22nd wave was conducted in the period from 16 February 2024 to 21 June 2024. An additional – equally representative – special survey to the KfW SME Panel 2023 on the current business situation was carried out at the start of September 2024 (with 2,494 responses).

On behalf of the German Federal Government, KfW runs numerous SME support programmes. Find out more at: Companies | KfW.