German small, medium-sized businesses hit hard by crisis

Special Report:Global Financial Crisis

BERLIN, March 10 (Chinese media) -- The global financial crisis has seriously hit

The business confidence of small- and medium-sized companies, which constitute the bulk of the German economy, has reached a record low.

A great majority of small- and medium-sized business leaders are pessimistic and anticipate a worsening of the situation in the next 12 months, according to a recent report by "Mittelstandsmonitor."

The business sentiment index, based on data from several German economic institutions and think tanks, lost nearly 18 points during 2008 and was only slightly above its base line.

Only in 1992, did the index dropped further due to an anticipated recession after the reunification of Germany.

The small- and medium-sized companies are especially pessimistic for the first half of 2009, the report said.

According to Helmut Roedl, board member of Credit reform, one ofthe institutions that the released the report, international-oriented big enterprises are being the hardest hit by the crisis.

However, all the negative effects of the crisis like cutting jobs or cancellation of orders have also gravely hit the medium-sized businesses, he said.

According to Credit reform, 35,000 companies in Germany could face the risk of bankruptcy this year.

Except for the building industry, almost every other sector in Germany is pessimistic about the next six to 12 months, the report said.

Among the sectors, trade and services are being hit the hardest with business confidence dropping to its lowest since 1992.

In manufacturing, some 42 percent of the medium-sized companiessee decreasing sales, marking an all-time low in business sentiment.

About 47, 6 percent of all polled companies fear profit setbacks. One year ago, only 16,9 percent thought they would lose profits.

Because of the general bad conditions, medium sized-businesses are cautious in terms of human resources planning.

In the second half of 2008, nearly 29 percent of the companies hired new staff and only 17 percent cut jobs. However, this would turn much worse in the first half of 2009.

According to "Mittelstandsmonitor," only 13 percent of the enterprises are planning to hire, and almost 20 percent are planning staff cuts.

Especially hard hit is eastern Germany. Almost 25 percent of the firms there are planning to slash jobs.

However, in terms of investment, the environment seems a lot better, according to experts.

About 44 percent of companies are planning to invest in the first six months of 2009, the report said.

The number is still far better than the all-time low in 2002 when only 30 percent of medium-sized companies wanted to invest, it said.

Thanks to Germany's massive stimulus plans, consumption may edge up slightly in the coming months.

The German market research organization GFK predicted consumption for individuals in 2009 would increase by 0.5 percent.

It said the overall consumer climate indicator would rise to 2.6 points in March, up from 2.3 points for February.

Germany's two stimulus packages, approved last November and January 2009, will inject 82 billion euros (about 102 billion dollars) into the economy in the next two years, which accounts for about 1.6 percent of its GDP, the biggest economic injection in Europe.

Still, a "serious recession" in Germany is "unavoidable," Mittelstandsmonitor, said, noting that the country's real GDP could shrink up to 4 percent.

The Mittelstandsmonitor report, published earlier this month under the initiative of the German state-owned bank KfW, is based on an annual survey of the country's economic situation and the business sentiment of small- and medium-sized businesses in the country.