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Sentiment Among Small German Businesses Near Pandemic Lows

 Sentiment among small and mid-sized businesses in Germany, hard-hit by massive cost increases, weak demand and high interest rates, is back near pandemic lows, a survey showed on Thursday.

A study by credit agency Creditreform showed morale among the “Mittelstand” companies that form the backbone of the German economy has slipped back into negative territory for the first time since 2020, signalling a contraction in economic output.

The index fell to -1.2 points in 2023, according to Creditreform, which surveyed some 1,200 firms. The only other time sentiment was lower in the last 10 years was in 2020, at -5.7.

Due to the sharp rise in financing costs and the gloomy economic situation, the willingness of these businesses to invest has also slumped, according to Creditreform.

The share of companies planning investments has dropped to 38.4% from 46.2% last year, the lowest level in almost 20 years.

“Even if the German economy is no longer shrinking next year, as predicted, the impact of the crisis is still considerable and will have consequences in coming months, said Patrik-Ludwig Hantzsch, head of Creditreform Economic Research.

“There will be an increase in insolvencies until the first half of 2024,” said Hantzsch. From spring 2024, the number of firms becoming insolvent should then begin to normalise.

Creditreform expects between 17,000 and 20,000 insolvencies this year, up from 14,600 in 2022. For the first half of 2023, about 8,500 firms were insolvent – 20% above last year.

Corporate bankruptcies are likely to rise steadily in the next one or two years, added Hantzsch, “but not to the level of the global financial crisis”.

In the crisis year 2009, there were almost 33,000 insolvencies.

Source : Reuters

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