German SMEs Show Resilience Amid Economic Headwinds
Germany's small and medium-sized enterprises (SMEs) demonstrated stability in 2024, reaching record employment levels above 33 million and posting slight growth in total revenues. However, investment appetite remained subdued.
German small and medium-sized enterprises (SMEs) have proven resilient in 2024 despite significant economic challenges. The sector saw a record increase in employment, reaching 33.01 million individuals, an addition of 207,000 jobs, reinforcing SMEs' role as a primary driver of the German economy.
Total revenues for the 3.87 million SMEs grew by two percent to EUR 5.2 trillion. While real revenues saw a one percent decline after accounting for inflation, this marked a substantial improvement from the ten percent drop recorded the previous year. Profitability remained steady, with an average return on sales of 7.0 percent. The equity ratio also saw a slight increase to 30.7 percent, accompanied by a significant reduction in the proportion of poorly capitalized firms.
However, KfW's study, the 'KfW-Mittelstandspanel', indicates a rise in 'zombie companies' – those unable to cover interest expenses due to low profitability – to 3.6 percent. Dr. Dirk Schumacher, Chief Economist at KfW, emphasized the critical importance of SMEs for Germany's economic standing and called for political measures to alleviate bureaucracy and facilitate investment.
The most persistent concern is the subdued investment appetite within the SME sector. Only 39 percent of companies implemented investment projects, nearing an all-time low. While firms have navigated cost pressures, rising interest burdens and low investment willingness pose risks to long-term growth. KfW suggests it is crucial for the SME sector to regain momentum for the country's economic health.