KfW Report: Decline in Germany’s SMEs Engaged in International Trade as Geopolitical and Economic Challenges Mount

KfW Report: Decline in Germany’s SMEs Engaged in International Trade as Geopolitical and Economic Challenges Mount

(IN BRIEF) Germany’s small and medium-sized enterprises (SMEs) have significantly reduced their international business activities, with the number of businesses operating abroad falling from 880,000 in 2022 to around 763,000 in 2023. Despite this, businesses that continued to operate internationally saw a slight increase in foreign turnover, rising by 12% to an average of over EUR 1 million. However, overall international turnover dropped by 0.4% nominally, and 6.5% when adjusted for inflation. KfW’s report cites geopolitical tensions, US protectionism, and domestic challenges as key factors behind the decline. SMEs, especially those operating in the US, are worried about the impact of new trade policies. While markets in Austria, Switzerland, and France remain strong, German exports to the UK and Russia have significantly decreased.

(PRESS RELEASE) FRANKFURT, 2-Jun-2025 — /EuropaWire/ — The number of small and medium-sized enterprises (SMEs) in Germany engaged in international business has significantly decreased, according to the latest Internationalisation Report from KfW Research. In 2022, around 880,000 of Germany’s approximately 3.8 million SMEs were active abroad, but by 2023, this number had dropped to approximately 763,000, marking a decline in the share of SMEs operating internationally from 23% to 20%. This figure now sits below the pre-pandemic long-term average. Despite this overall decline, SMEs that continued their international operations were able to increase the foreign share of their total turnover, which rose by 2 percentage points to 29% in 2023. These businesses also saw an absolute increase in foreign turnover, up by approximately 12% to over EUR 1 million on average. However, the rise in turnover was not enough to counterbalance the shrinking number of businesses involved in international trade. Overall, Germany’s SMEs’ international turnover decreased by 0.4% in nominal terms to EUR 698 billion, with a more significant drop of 6.5% when adjusted for inflation.

The report attributes the poor outlook for external trade to several factors, including ongoing geopolitical tensions, such as the conflicts in Ukraine and the Middle East, heightened competition from Chinese exporters in key industries, and protectionist policies in the US. According to Dr. Dirk Schumacher, Chief Economist of KfW, “The conditions for external trade have deteriorated significantly,” adding that many German SMEs view domestic conditions as increasingly hindering their global competitiveness, further exacerbating the challenges they face. A special survey of German SMEs conducted in January 2025 showed that, although 38% of businesses with foreign operations anticipate modest growth in international business over the next three years, many are concerned about declining foreign turnover. Twenty percent expect a decrease in their international revenues, with an additional 8% anticipating a sharp decline.

Among the regions of concern, businesses with operations in the US are particularly worried. Currently, 16% of German SMEs are involved in the US market, with 34% of those businesses expecting negative impacts from the US’s evolving trade policies, a situation that could worsen further with US President Donald Trump’s upcoming tariff policies. On the export front, Austria and Switzerland remain the top destinations for German SMEs, followed by the Benelux countries and France. However, exports to the United Kingdom have plummeted due to Brexit, while the Scandinavian market has also lost significance. Additionally, most SMEs have withdrawn from the Russian market, with only 1% of internationally active enterprises currently exporting to Russia, down from 11% eight years ago.

Media Contact:

Ms. Nina Luttmer
+49 69 7431 41336
nina.luttmer@kfw.de

SOURCE: KfW