OREANDA-NEWS. SMEs showed themselves to be robust in 2012 and companies still appear resilient. However, even German SMEs were unable to fully escape the weak growth trends in Europe: The first shadows have been cast over the years of success, as can be seen in the only annual representative set of data on German SMEs, the 2013 KfW SME Panel. Small and medium-sized enterprises (SMEs) boosted their sales by 2.4% in the past year. This figure stood at 8.1% in the prior year, meaning it fell last year by 70%. While a rise in full-time employment has been observed (+2%), part-time employment has been cut back (-15%). As a result, the number of people employed at SMEs has declined for the first time in six years, albeit only marginally by 0.3%. SMEs as “job engines” are beginning to sputter.

The average return on sales for SMEs on the whole is positive. This rose by 0.3 percentage points to 6% - the highest figure since the SME Panel began in 2002.

The shadows are apparent, however, when looking at small companies with fewer than ten employees, which at a 92% share form the backbones of the SME sector. These show a divergent trend: The returns on sales of small enterprises have fallen significantly by 1.1% to 10.3%. For this group of companies, this is also leading to a substantial decline in equity ratios, namely from 23.5% to 18.5%, for the first time in five years.

The performance of the manufacturing industry is also a cause for concern. Both the R&D-intensive manufacturing industry and other manufacturing are especially important if the German economy is to remain competitive at an international level. Sales growth in both segments fell to 3.2% and 1.7% in 2012 following double-digit growth rates in years prior. This trend has implications for companies' profitability, which has declined especially sharply for R&D-intensive SMEs, namely by 0.7 percentage points. Should this continue, it could have an impact on companies' ability to invest and innovate.

The uncertainty surrounding the outstanding structural reforms in Europe, the recession in the eurozone and slowed growth around the world is also reflected in the willingness of SMEs to invest. Despite historically good access to credit, these companies are holding back with their investments. The recovery of these spending activities seen in the previous year did not prove sustainable. Instead, total investment spending fell to EUR 191 billion (-2.4%) in 2012. The proportion of SMEs investing is declining once again, and at 41% is two percentage points lower than in the previous year. The gap between small and large companies has thus widened further.

KfW Chief Economist Dr Jorg Zeuner stated: “Small and medium-sized companies in Germany have come out of the crisis of the last few years better off than those in other countries. This has also cost them strength. The development of profitability and equity amongst small companies in particular is cause for concern. If this trend continues in the medium to long term, it will likely have consequences for these companies' ability to compete. The KfW SME Panel shows that some German SMEs are living hand-to-mouth. It is therefore all the more important to maintain and promote their strengths: a range of sizes, a balanced industry structure, a strong industrial base, a readiness to innovate and customer orientation. In doing so, the growth momentum must be reinforced, especially in Europe, and the investment climate must be improved.”