Economic situation and financing in the SME sector, fall 2022

Updated: Nov 17

"Gun smoke" over German SMEs



In view of the sharp rise in energy prices, sentiment among German SMEs has deteriorated significantly. The current fall survey by Creditreform Economic Research shows a marked decline in the business climate index (CGK) from plus 25.2 points in the previous year to currently only plus 3.1 points. The slump was similar to the Corona year 2020. The calculation of the Creditreform Business Climate Index is based on a survey of around 1.200 small and medium-sized enterprises.


"For almost three years, SMEs have been in an exceptional situation of unprecedented proportions. The economy is suffering massively from the energy price shock and the increase in the price of other raw materials. The spiral of escalation in Eastern Europe is preventing the necessary recovery of German companies after the Corona period," says Patrik-Ludwig Hantzsch, Head of Creditreform Economic Research. "Germany's economic development is directly influenced by the war and its effects. Economic policy support measures should nevertheless focus not only on the liquidity of businesses, but above all on profitability, in order to break out of crisis mode in the medium term," Hantzsch continues.

Crisis symptoms on the rise


The order and sales situation in the SME sector is already showing unmistakable signs of crisis. However, the energy emergency has by no means fully impacted the business situation of the companies. A good third of those surveyed (34.1 percent) reported an increase in sales. In the previous year, however, this proportion had been higher (42.5 percent). As many as 21.0 percent of the companies surveyed reported a drop in sales (previous year: 12.6 percent). The deterioration in the economy was more apparent in terms of new orders: only 23.6 percent of respondents reported rising order backlogs (previous year: 38.2 percent) and one in four (25.2 percent) reported a decline (previous year: 12.0 percent).


Despite the worsening conditions, employment in SMEs increased once again. However, the willingness to hire was lower than last fall. 20.1 percent of respondents increased their headcount (previous year: 27.1 percent), while the number of employees declined at 12.6 percent of companies.


SMEs are pessimistic



Business expectations among SMEs have deteriorated even more sharply than the assessment of the situation. In many cases, the companies surveyed are pessimistic about the future. Only one in seven (14.7 percent) now expect incoming orders to rise (previous year: 28.9 percent). More than one in four respondents (26.0 percent) expect fewer orders in the coming months. The proportion of pessimists also increased in terms of sales expectations. 25.2 percent of respondents expect lower sales. This is a noticeably higher proportion than in the previous year (9.1 percent). Even though 26.0 percent of respondents expect sales to increase, this is likely to be due primarily to price rises as a result of inflation.


The overall business situation is therefore unlikely to improve. The willingness to invest has also declined. Whereas 51.6 percent of respondents were planning to invest in the previous year, this figure has fallen to 46.2 percent. A further 20.6 percent of respondents are planning to recruit new staff, compared with 28.3 percent in the previous year. One in ten companies intends to reduce its workforce.


Earnings situation again in crisis mode


The earnings situation in the SME sector is significantly more negative than in the previous year. The energy crisis is currently having a negative impact on companies' earnings. One in three companies (32.5 percent) reported a decline in earnings (previous year: 19.4 percent). Only 19.2 percent of respondents reported an improvement in earnings. There is a threat of further deterioration in the coming months, with 33.7 percent of respondents anticipating a drop in earnings (previous year: 13.5 percent).


"The short phase of economic recovery after the Corona period was probably not enough to make up for the cuts in capital reserves and equity ratios at the time," explains Hantzsch. Currently, equity ratios have come under pressure, especially in the manufacturing sector. In the SME sector as a whole, the proportion of companies with low equity (equity ratio below 10 percent) has risen as a result to 27.0 percent (previous year 25.8 percent). However, more than a third of SMEs (34.2 percent) have a comparatively high equity ratio of over 30 percent.

Energy crisis most important topic



The main topic of 2022 for SMEs is energy prices. Compared with the spring, companies' perceptions have shifted even more strongly to the energy issue - from 3.2 to 80.6 percent of respondents.


The war in Ukraine also concerns companies far more than in the spring (32.5 percent; spring 2022: 4.0 percent). In second place among the most important topics is the inflation rate (73.0 percent). Still in focus are the shortage of skilled workers (63.2 percent) and delivery problems (62.5 percent).


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Written by Creditreform