Berlin Germany has a growth problem that doesn’t just affect large industrial companies. Rather, small companies are increasingly getting into difficulties.
This is proven by several indicators, especially the “Jimdo-Ifo business climate index for the self-employed”. It includes self-employed people and companies with up to eight employees and fell to its lowest level in August since the survey began in August 2021.
The economic prospects in Germany are bleak. The German economy has not grown for three quarters in a row. In the corporate landscape, it has so far been the large industrialists who have been particularly frightened by public scrutiny.
However, it has now become apparent that it is primarily small companies that are particularly hard hit by the economic downturn. The Ifo index for the overall economy is also steadily declining. But not as much as with small businesses, the gap has grown again in the past month. “In particular, dissatisfaction with current business increased significantly compared to July,” said Ifo economist Katrin Demmelhuber.
Although larger industrial companies traditionally account for a large share of German value creation, the indicator is particularly important for small companies. Because they make up the majority of the German economy.
The Federal Statistical Office counted a good 2.5 million companies in Germany in 2020. More than two million of these are classified as micro-enterprises, meaning they had a maximum of nine employees. There were only 15,000 large companies with at least 250 employees and a turnover of more than 50 million euros.
Economic situation: Bad mood among the self-employed
Due to the backlog of orders that had built up during the Corona period, the industry continues to have only minor problems on the demand side. Small businesses and self-employed people, on the other hand, are increasingly experiencing problems due to a lack of demand.
Companies with fewer than ten employees in particular report poor future prospects.
(Photo: dpa)
The bakery or the fitness trainer make their living from the direct, short-term consumption decisions of their customers. But given the high inflation, many people are saving. “The order situation is simply too thin to compensate for the rising costs,” says Matthias Henze, head of the IT service provider Jimdo, which specializes in small businesses and the self-employed.
The political reaction to this is particularly complicated because consumer thrift is to some extent desired. The European Central Bank (ECB) has raised interest rates at a record pace in recent months to combat inflation. This happens primarily through less private consumption.
A glimmer of hope in the new Jimdo-Ifo index is the business expectations of small businesses and the self-employed. These remained roughly constant in August, albeit at an extremely low level.
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However, the survey was completed before last Thursday. The ECB raised the key interest rates again – which is likely to further dampen the expectations of small companies.
The lack of workers is also increasingly becoming a problem for small companies, among which there are many freelancers. There is a lack of 346,000 skilled workers in the teams of around 1.47 million self-employed freelancers, and over 30 percent of the trainee positions in the liberal professions are unfilled, explains Peter Klotzki, general manager of the Federal Association of Freelance Professions (BFB).
Reducing bureaucracy as a “top priority”
That’s why there is agreement that the little ones cannot be ignored. However, direct help, such as the industry would like with the bridge electricity price, is hardly conceivable for small businesses. Other ways are needed.
“The top priority is certainly to reduce bureaucracy, because small and medium-sized companies particularly suffer from this,” says Düsseldorf economist Jens Südekum. Klotzki also points this out: “In such a situation, the ever-increasing bureaucracy has an even more demotivating effect.”
The federal government has also recognized this. The Ministry of Economic Affairs is working on a basic register for administrative files. The highly fragmented register landscape in Germany has so far been barely networked and poorly digitized. Many companies currently have their data recorded in several registers in parallel. This leads to duplication of messages and queries.
A base register should change that. In the future, it will store master data of all companies in Germany. The Ministry of Economic Affairs estimates the possible relief for companies to be in the three-digit million range.
Further steps are to follow, such as the removal of reporting obligations. At the end of August, the federal government drafted a new bureaucracy relief law at its cabinet meeting in Meseberg. Small businesses in particular have great hope.
Small companies make up the majority of the German economy.
(Photo: Stone/Getty Images)
However, BFB managing director Klotzki fears: “Although individual federal government departments are addressing the value of self-employment and trying to improve the conditions for it, this is also counteracted by a desire to fulfill more government tasks.”
Tax relief is probably ineffective for small businesses
Small businesses’ further hope lies in tax relief. The “Growth Opportunities Act”, which was also passed in Meseberg, is unlikely to do much for the little ones. Jimdo boss Henze says: “The Growth Opportunities Act only helps the self-employed and small companies to a limited extent and will therefore not lead to a turnaround in the trend.”
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This could sometimes be due to bureaucratic problems with the investment bonus, which is central to the law. In principle, this would be “a good instrument because it is aimed at companies of all sizes,” praises economist Südekum.
But the cabinet version of the law states that a study into the energy savings of the investment is required beforehand so that companies can claim the bonus. In addition, the investment should be at least 10,000 euros. This is “not feasible” for small companies, stated the eight leading German business associations in a joint statement.
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This article was published on August 15, 2023. It has been re-reviewed and updated with some adjustments.