Inflation and rising costs continue to press on Spanish SMEs
Inflation and the higher costs tied to it still weigh on small and medium-sized enterprises, which account for about 90 percent of Spain’s business landscape. The latest Cepyme Indicator on the State of the SME for Q1 2024 shows sales grew by just 0.5 percent year over year, while small firms were 0.7 percent smaller than in the same period in 2019. From January to March 2024, SME productivity fell by 3.3 percent, marking five straight quarters of year‑over‑year declines and a 2.8 percent drop versus early 2019. In this context, industry groups are urging policymakers to consider these figures during the ongoing talks on reducing the weekly work hours to 37.5, a reform currently under negotiation.
The drop in average SME productivity stems from a buildup of negative indicators, even as the number of salaried workers rose by 2.7 percent. Operating costs have eased by about 1 percent but still sit 22.5 percent above the Q1 2021 level, the point when the Ukrainian invasion and global inflation began to bite. Simultaneously, total labor costs for SMEs grew 4.7 percent year over year after ten consecutive quarters of at least 5 percent increases. Over the last three years, small firms saw a 21.7 percent rise in costs, while medium-sized firms saw a 15.9 percent rise, driven by higher wages, social charges, bonuses, and overtime. Employment rose by 2.7 percent in Q1 2024, with a 3.8 percent gain in mid-sized companies (up to 2.72 million workers) and 2.2 percent in small firms (up to 6.32 million).
Interest rates for new SME loans followed a similar trend. The average rate on new bank credit to SMEs declined slightly but remained the second highest level since March 2009, at 4.91 percent. New lending to these firms is gradually recovering, rising 2.5 percent year over year in real terms. The de‑leverage process continues, with SMEs reducing net liabilities as a share of equity by four percentage points over the year to 87.1 percent. Yet, the cost of trade credit has surged, with commercial debt totaling €2.94 billion in the first quarter of 2024, a 126 percent jump from the same period in 2022.
Profitability standings for SMEs in Europe
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If the picture widens to the European Union, Spanish SMEs sit toward the lower end of profitability on sales. The profitability rate for Spanish SMEs stands around 6.1 percent, well below Belgium (13.6%), Portugal (8.8%), and France (7.2%). Still, profitability outpaces Italian SMEs (5.9%) and Croatian SMEs (4.2%).
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As costs rise, smaller firms continue to shrink. Cepyme notes about 3,800 SMEs have fewer employees than five years ago. In the first quarter of 2024, about 6,000 more small firms disappeared compared with 2019, while mid-sized firms added around 2,200. Approximately 2,557 SMEs sought insolvency protection, including sole traders, marking a 47.9 percent increase from the same period the previous year.