German Mittelstand not entirely immune to global economic slowdown

As we can see from the results of the new SME study carried out by DZ BANK and BVR, sentiment among the small and medium-sized enterprises (SMEs) in Germany deteriorated again slightly this spring. In fact, the assessment of the current business situation yielded the second consecutive decline, with the balance of positive and negative answers falling from 79.3 points in our autumn survey to 73.9 points. In a globalised world, even the SMEs that are focused on their domestic market are unable to entirely avoid the impact of increased international risks. Nonetheless, the current business situation is still at a good level in a long-term comparison and the SMEs do not expect the weak phase to persist. Following a marked decline last autumn, they are already somewhat more optimistic again about the future, with the balance of business expectations rising from 21.1 to 24.1 points.

It has become increasingly apparent in recent years that the shortage of skilled labour is posing a general problem for the German economy. It is meanwhile affecting companies of all sizes and across all industries of the German Mittelstand, with only 3.3% of the respondents reporting that they were not affected by the skills shortages. They are trying to counter this by seeking stronger employee loyalty, which they are achieving through qualification measures, pay increases and company pension schemes, among other things. However, nearly a quarter of the respondents find that a shortage of housing and high rents are making it difficult to recruit qualified personnel and expand capacity in their own companies. The figure is much higher still in Bavaria.

Although German SMEs are scaling back their international exposure in response to the global economic slowdown, over half of them are still active abroad, especially in the neighbouring European countries. The geographical proximity as well as the domestic market and companies’ common currency make it easier to tap international markets. This, however, also shows that globalisation with its attendant opportunities and risks has reached the German Mittelstand: 68.8% of the SMEs expect Brexit to impact on their companies, while 47.4% anticipate growing competition from Chinese companies.

Nonetheless, the German Mittelstand will continue to grow in 2019 and thus remain a stable pillar of the German economy. The above-average orientation on the domestic market makes the small and medium-sized enterprises less susceptible to the impacts of international crises, which can benefit them in times like these.

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