Germany’s Mittelstand — the backbone of the country’s economy — is employing more people than ever. Small and medium-sized enterprises (SMEs) accounted for around 33 million jobs in 2024, according to new data from state-owned development bank KfW. Nevertheless, growth in employment has clearly slowed.
Only 207,000 additional jobs were created over the past year. In 2023, that number had been more than twice as high, with almost half a million new positions added. Economists warn that the impressive employment figures mask underlying weaknesses.
High costs and lower profits strain the SME sector
Despite demonstrating remarkable resilience through economic turbulence, many businesses are far from thriving. KfW Chief Economist Dirk Schumacher highlights that a combination of rising costs — for labour, materials and energy — is putting pressure on profitability:
SMEs remain resilient, but their situation is far from comfortable.
Squeezed margins and cautious financial outlooks are making companies reluctant to invest in new equipment, facilities or digital transformation.
Investment stuck near historic low levels
The Mittelstand’s willingness to invest has hardly improved.
Only 39% of SMEs moved forward with investment projects in 2024 — almost unchanged from the previous year and close to a record low in long-term comparisons.
Total investment reached €221 billion, but adjusted for inflation, spending remained in decline. That means companies are effectively reducing their real investment footprint, risking future productivity and innovation.
Paperwork overload: bureaucracy drains productivity
- One of the most urgent complaints from entrepreneurs: administrative obligations.
- Around 7% of total working hours are consumed by bureaucratic tasks
- That equates to roughly 32 hours per employee each month spent on documents, forms and regulatory compliance
Many view this as a direct drag on competitiveness, particularly compared to other major economies where regulatory environments are less complex and decision-making processes faster.
External pressures continue to weigh on growth
SMEs also face:
- Sluggish economic conditions within Germany and the EU
- Global trade uncertainties, especially from the United States
- High financing and energy costs
- Skills shortages in key sectors
For many companies, these combined factors make expansion too risky, even with full order books and strong workforce engagement.
Policy experts urge quick relief
The Mittelstand is responsible for the majority of employment in Germany and remains a vital pillar of tax revenue, innovation and regional development. Policymakers are therefore under pressure to ease the burden on small businesses.
Schumacher stresses:
- For Germany’s economic future, restoring strength in the Mittelstand must become a priority.
- If bureaucracy continues to grow faster than investment, experts warn that the engine of Europe’s largest economy may gradually lose its power.
