Interest rates just one factor among several for companies looking at new investment
Mrs Köhler-Geib, there are widespread complaints that there is too little investment in Germany. But there are certainly good reasons to invest – aren't there?
Investment is essential for companies to secure their own competitiveness, and that of the German economy. For companies, investment is often also about gaining market share in growing markets, and there are opportunities here, particularly in the area of green technologies. The transition to a sustainable economy requires increased efforts, and is accompanied by high investment needs. There is also a lot of catching up to do in terms of digitalisation – though the Covid crisis moved things forward in this area. It is therefore very important to stimulate, and intelligently support, companies' investment activities.
What are currently the biggest obstacles to investment?
We know from our latest survey of SMEs in April that, in particular, Germany's macroeconomic picture had a strong inhibiting effect on investment in the first quarter of 2024. This reflects the difficult economic situation at the beginning of the year, and as a result, sales trends at companies. However, price levels (for materials, energy, wages), and also regulatory requirements, are also cited by companies as barriers to investment. Financing conditions are also perceived as an inhibiting factor for companies' investment plans – but overall this factor ranks behind the others.
If the ECB does indeed cut interest rates in June as anticipated, financing conditions will improve – will investment then also pick up again?
A positive effect can certainly be assumed. We expect a slight additional impact for around 5% to 6% of SMEs, that would very likely expand their investments beyond the level initially planned for 2024 – in the event of a key interest rate cut. That represents around 200,000 companies. In addition, there are those who have plans for investment, but which are on hold due to the current discussion over rates. How much momentum there will ultimately be will of course also depend on the number and size of interest rate cuts – and whether companies actually implement their plans.
Do interest rate cuts really play a significant role for most SMEs?
For the broad mass of SMEs – almost 80% of which have fewer than five employees – a cut in the base rate only plays a minor role. There are various reasons for this. Either no investment is planned anyway, . or investment is planned without bank loans. Traditionally, SMEs finance the majority of their investments with their own funds – the most recent figure is 51%. If debt capital is used, interest rates often do not play a decisive role for many companies, as these are predominantly microloans. Overall, financing costs are therefore an important investment lever, but only one among several.
Which areas of investment are likely to benefit most from a reduction in interest rates?
We have some good news here. Investment impetus is expected in particular in the areas of digitalisation, climate protection and energy efficiency. An interest rate cut will therefore also benefit companies' transition efforts. Four out of ten companies want to use the additional investment for digital and sustainable projects if financing conditions improve. In addition, a significant proportion of the investment triggered by the turnaround in interest rates will benefit the renewal of existing equipment or machinery. This will also help to boost companies' productivity and efficiency.
