SME, Climate, Business, America, the Middle East, Africa, Export Portal, investments

The first quarter of 2021 has been challenging for many German businesses. Sales have fallen, and many SMEs have seen their earnings deteriorate. According to a survey conducted among MITTELSTANDSVERBUND members, 29% stated that their economic situations were poor. But in Q4 2020, only 20% gave that answer. Simultaneously, the percentage of companies that described their situations as "good" had dropped to 37%, which was 16% less than before.

Stricter Lockdown Measures and Worsening Global Trade Climate

Unfortunately, it will likely get worse before it gets any better. The German government has decided to strengthen lockdown measures, which will continue to affect the economy in the second quarter. Financing is also getting more challenging, as German banks tighten their lending standards due to increased risks. 

Thus, 50% of the surveyed companies believe the revenues will stay the same, almost 28% expect it to worsen, and only 21.2% expect an increase. The negative expectations are also affecting investments, with 26% stating that they invested less than they did in the previous quarter. 

The Munich-based ifo Business Climate Index plummeted to 74.3 points from 85.9 in March as well, leading Ifo head Clemens Fuest to say, "the corona crisis is hitting the German economy with full force."

Expectations of markets in central and south America, the Middle East, and Africa have also worsened, along with companies carrying out foreign business activities to be hit hard. In fact, 47% of companies reported experiencing increasing trade barriers like more sanctions, tariffs, and stricter safety requirements.

Vaccines are Progressing, and Layoffs are no Longer Increasing

With negative earnings expectations rising and investments decreasing, it's unlikely that the situation will significantly improve any time soon. However, on the bright side, vaccine rollout is finally accelerating. In mid-April, the Health Ministry reported 738,501 people receiving a first or second dose of the vaccine on a single day. 

Another positive note is that there were no mass layoffs, and 73% of those surveyed said they were able to maintain their workforces. Moreover, 68% stated that they believe they will not have to lay off any more people in 2021. Once the lockdown measures ease and the economy starts picking up steam again, it will be essential to have a well-trained workforce ready to leverage the momentum.

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