Economic Downturn Grips German Mittelstand: Datev Analysis
The economic downturn is increasingly affecting the German Mittelstand, according to an assessment by Nuremburg-based IT service provider, Datev.
Manufacturing Sector Hit Hard
"The economic crisis is particularly affecting the manufacturing sector," said Robert Mayr, CEO of Datev, which evaluates millions of monthly sales tax data and payroll records for its Mittelstand index. "Sales in the manufacturing sector have declined significantly at the beginning of the year. Adjusted for price, sales have been falling there for three years now."
Small Businesses Bear the Brunt
The crisis is especially straining microenterprises. While employment in the Mittelstand remains stable overall, personnel reductions have begun in companies with ten or fewer employees, Mayr told the German Press Agency. "Microenterprises, which are often strongly tied to their region and have sometimes been at their location for generations, hold on to their employees as long as possible. When they start cutting jobs, it’s a warning sign."
Mittelstand Index Provides Detailed Insights
Datev’s Mittelstand index includes sales tax returns from around one million companies and payroll records from over eight million employees. This provides a detailed view of microenterprises, small, and medium-sized businesses. As a cooperative IT service provider, Datev specializes in serving tax consultants and auditors.
Burdensome Bureaucracy and Rising Costs
The entire Mittelstand is suffering from bureaucracy and rising costs, said Mayr. At the same time, wages have risen sharply in recent years in the competition for skilled workers.
Microenterprises, however, find it harder to shoulder bureaucratic burdens and often have less resilience against competition. "The smaller the company, the more difficult the situation," Mayr said. "A local retailer who has just experienced a weak Christmas season cannot compete with online retailers, and a local baker cannot compete with prices in supermarkets." A carpenter or baker cannot relocate either, "they are regionally bound and eventually just give up."
Positive Developments Amidst Challenges
Despite these challenges, Datev’s Mittelstand index does indicate some positive developments. For example, the hospitality industry and construction sector have largely stabilized at low levels. "In contrast, sales and employment in state-related sectors have recently grown above average."
Call for Relief Measures Ahead of Elections
In view of the upcoming federal elections, Mayr sees a need for relief for the Mittelstand in several areas. "Many companies want faster processes and more digitalization in public administration."
Key Takeaways:
- The economic downturn is significantly impacting the German Mittelstand, particularly the manufacturing sector.
- Microenterprises are disproportionately affected by the crisis, with job cuts starting in companies with ten or fewer employees.
- Bureaucracy, rising costs, and wage inflation are weighing heavily on the Mittelstand, especially small businesses.
- The Mittelstand index shows some positive developments in sectors such as hospitality and construction.
- Business leaders are calling for relief measures, including faster administrative processes and increased digitalization, ahead of the federal elections.
