German firms play it safe and hold back on investment

Germany’s Mittelstand companies, the small and medium-sized enterprises accounting for more than half of gross domestic product, are holding back on investment amid doubts about economic growth, a bank association said.

“Weakness of investment was not due to a lack of external financing or insufficient equity,” said the DSGV, which represents Germany’s 416 savings banks. “The continuing economic difficulties experienced by many partner countries [that use the euro], as well as geopolitical crises, have reinforced the wait-and-see attitude of many enterprises.”

A gauge of euro-area services and manufacturing released by Markit Economics research company a week ago indicated GDP growth slowed in the final quarter of 2014. In Germany, the measure’s rise in December was the first gain in three months.

The 3.7m Mittelstand companies that generate annual sales of as much as €50m apiece haven’t changed their financing significantly, even with record low interest rates, the DSGV said, pointing to a “growing trend among SMEs to finance new projects from their own resources”.

At the same time, small and medium-sized enterprises further strengthened their capital, with the median equity ratio rising to 22.3% of total assets in 2013 from 19.7% in 2012.

* Bloomberg