The Mittelstand is feeling nervous as serious concerns remain on the future of the Eurozone
Stuttgart, Germany, 30 January 2013
Despite recent indications of improved economic stability in the Eurozone the German Mittelstand increasingly feels the negative effects of the crisis in Southern Europe: 45% of the German Mittelstand or small to medium size enterprises (SMEs) are reporting declining revenues because of the Eurocrisis, compared to 30% in August 2012. As many as one in ten of the companies surveyed also said they were focusing on their company’s survival, and almost a third of companies (31%) believe their existence to be at risk if the economy does not improve in Europe in the next six months. This is according to Ernst & Young’s bi-annual German Mittelstand Barometer 2013, based on a survey of 3,000 German SMEs carried out between December 2012 and January 2013.
- SMEs more optimistic about the future of German economy than 6 months ago
- But 1 in 3 German SMEs feel ‘at risk’ if European downturn continues
- And 70% believe the worst of the Eurozone crisis is still to come
The number of businesses who reported “good” revenues has slipped from 53% six months ago to only 39% today, with 15% of the SMEs surveyed saying their profit margin is “unsufficient” - compared to 8% six months ago. This is the highest figure since early 2010.
Despite gloomy expectations about their own business, the Mittelstand is significantly more optimistic about the future of the German economy than it was six months ago. Those responding as more confident, up from 11% to 28%, is now a higher number than those feeling less confident at 23% down from 45% in August 2012. Despite the uncertainty in both the German and wider European economy, 24% of German SMEs said they were still pursuing further growth.
Employment still affected by the current economic conditions
The lack of confidence in their own prospects also impacts the German labor market, as the number of SMEs planning to increase their workforce has also fallen compared to August 2012 – from 22% to 18%. One in seven of the companies surveyed (14%) are planning to reduce their headcount compared to 9% six months ago.
Peter Englisch, Europe, Middle East, India and Africa’s Family Business Leader at Ernst & Young comments:
“Due to the uncertain economic outlook, companies are more cautious about their recruitment strategy, and instead of investing in new hires, they are currently getting ready for another downturn. Cost reductions are most likely to be on the agenda. The boom in the German labor market is probably over for the time being.”
Stability among SMEs down – access to funding remains challenging
The economic market environment has deteriorated for many SMEs due to the weaker German economy and the weak economy in many parts of Europe. The number of SMEs saying that their business is ‘very stable’ has fallen from 30% in August 2012 to 23% – the lowest figure since July 2009. By contrast as many as 11% of the companies surveyed said that there position was ‘critical’.
“The weak economy is increasingly causing problems for SMEs,” says Englisch. “More and more SMEs are struggling with declining order volume and could face difficulties if the downturn continues. Given it is now clear that Germany is not immune to the economic volatility; SMEs need to be flexible and work on a number of scenarios, which will help them prepare for the difficult times.”
There is a polarization among the Mittelstand as Englisch explains: “Interestingly, while some SMEs are fighting for their very existence, bigger SMEs with an international presence – are pursuing opportunities, growth, and winning additional market shares. We expect consolidation in the Mittlestand – especially if the economy does not rapidly pick up again.”
In many cases, the situation is also aggravated by the perceived reluctance of banks to grant loans to the Mittelstand. Those surveyed highlighted that access to funding remains challenging with 16% of SMEs complaining that it is more difficult to obtain bank loans – while only 7% report that it has become easier for them.
Companies expect sovereign debt crisis to worsen
While recent economic forecasts have suggested some welcome stability to the Eurozone the Mittlestand is clearly not convinced. Almost three quarters of those polled anticipate that the worst of the crisis is still to come. Thirty percent of the companies even believe that the European single currency will collapse. And the vast majority of the Mittelstand (81%) take the view that ultimately Germany will also have to pay a considerable price for the debts of other Eurozone countries.
“Many German SMEs have challenges with the strategies for solving the sovereign debt crisis that have been proposed by politicians so far. From their own experience, they are aware of the need for structural change in times of crisis and regard much of the current policy as essentially postponing the problems of the Eurozone, not solving them,” remarks Englisch.
Economic recovery from mid-2013?
Englisch assumes that the German economy’s current period of weakness will be over by the middle of the year, “There is some evidence that the economy may pick up again from the second half of 2013, notably if there is renewed upturn in foreign demand. However, if such urgently needed impetus for growth does not materialize, many companies could then end up with their backs to the wall.”
Notes to Editors
About the survey
This study, which is performed every six months, is based on a survey of 3,000 SMEs in Germany, carried out in December 2012 and January 2013.
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