Medium-sized companies in Germany are doing better than ever, according to a semiannual study measuring economic conditions and prospects but the horizon is dark, with results showing growing pessimism over the geopolitical climate. EURACTIV Germany reports.
Germany’s medium-sized economy is booming: a July survey shows 56% of Germany’s medium-sized firms are satisfied with the general business environment – at the start of this year only 53% expressed this opinion. Another 32% who may be less satisfied still consider their position “slightly more favourable” (January: 38%).
These are the results of a semiannually conducted middle class barometre carried out by the auditing and consulting firm Ernst & Young (EY). Conclusions are based on a survey of 700 medium-sized businesses in Germany with the latest of its kind taking place over the latter half of July 2014.
The second survey carried out this year shows a surprising trend: despite rising geopolitical tensions and declines in business with Russia, the overall business climate has reached record levels.
No EY middle class barometre thus far has measured a higher rate of satisfaction. The firm has been producing studies of this kind for 11 years.
But the results also suggest that the economic climax may have already come and gone.
After July’s responses, EY has concluded that prospects among members of the middle class are darkening: Only 31% of companies expect an improvement to their current business situation – at the start of the year the amount was 42%.
The number of medium-sized companies planning to raise their overall investment has dropped from 29% at the beginning of 2014 to a current rate of 21%.
Dynamism on the labour market is also ebbing: There are less companies planning to employ additional workers, decreasing from 28% to 26% during this year. Currently 13% of companies intend to make personnel reductions. At the beginning of this year only 9% of companies indicated such plans.
Given the unstable economic outlook, companies have adjusted their predicted sales for 2014 to slightly lower levels: from an average of 1.5% in early 2014 to a current average of 1.3%. One in nine medium-sized enterprises is counting on drops in revenue during this year – at the start of 2014 it was only 7%.
“The conditions for Germany’s middle class are still good – but the attitude has not been positive for a long time,, said Peter Englisch, a partner at EY, summing up the results of the study.
“Significant insecurity predominates, particularly with regard to further developments in the conflict with Russia. That takes a toll on trust and hinders investment. And the headwinds are growing stronger,” Englisch explained.
As a matter of fact, the Ukraine crisis has already taken its toll on the balance sheets of many medium-sized businesses: 22% of industrial firms and 19% of commercial enterprises indicate their own business has suffered due to negative fallout from tensions with Russia.
Services providers are not as hard hit, with only 9% indicating possible negative effects.
In Germany, one out of six medium-sized entrepreneurs considers the current geopolitical tensions a significant threat to the development of their own business.
Effects felt by Germany’s medium-sized firms can be explained by the high level of internationalisation among companies and their strong presence in Eastern Europe.
One in six medium-sized companies is active in Russia while 10% are present in Ukraine. Industrial firms in particular have moved into these two countries over the past few years: 27% conduct business in Russia and 17% are active in Ukraine.
As a result, many companies working in Russia and Ukraine have reported considerable losses in local business development caused by the crisis.
The conditions for business with Russia were rated negatively by 23% of the companies surveyed – 5% even referred to the situation as extremely negative.
In contrast, 22% of businesses involved in Russia were more positive, responding that conditions are mostly satisfactory.
Respondents painted a much more critical picture of the situation in Ukraine: only 8% of medium-sized entrepreneurs active in the country were satisfied with business development there while 43% described negative conditions.
The European Union decided to impose broad sanctions against Russia in July over Moscow's alleged support for rebels in eastern Ukraine.
For the first time, the sanctions targeted broad sectors of the Russian economy, including oil companies, banks and defence firms.