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Commission study reveals impact of high inflation on SMEs

Wednesday, 24 January 2024
Newsletter Industry news eu

On 15 December 2023, the European Commission published a study on the impact of high inflation on Small & Medium Size Enterprises (SMEs). The study covers the effects of current inflation levels on various aspects of SMEs such as late payments, bankruptcies, potential for growth and investments in digital and sustainable practices.

Following a decade of relatively stable inflation of around 2%, a noticeable shift occurred in 2021 and peaked in 2022. The tourism, transportation, retail, and construction sectors experienced a significant increase, ranging between 10% and 13%.

Bankruptcy rates have been on the rise since 2022, reaching a peak in the second quarter of 2023. Notably, the accommodation and food services sectors recorded one of the highest increases (64.5%).  Despite challenges such as higher loan interest rates and increased costs, the study foresees a return to pre-pandemic bankruptcy levels for all sectors, with variations from 0% to 5%. However, under more pessimistic scenarios, the accommodation and food services sector might experience a doubling of bankruptcy declarations.  In many countries, this is getting worsened by the decisions to significantly increase VAT rates. 

Furthermore, high inflation contributed to less investments in digital and sustainable measures, as revealed by the study. In the tourism sector, 67% of the respondents declared they had made no investments in sustainable solutions, (such as hotel renovation and energy efficiency) or digital solutions over the previous two years, making it the sector with the highest share of businesses lacking long-term investments.

As SMEs navigate these challenging times, the findings of the study underscore the need for targeted interventions and support to sustain and revive the tourism, accommodation, and food service sectors in Europe.

The final report and a summary of the study are accessible here.