Struggling Freelancers and Small Businesses: A Tough Climate Amidst Economic Turmoil
Deterioration in self-employed morale amidst challenging business conditions - Deteriorating sentiments among self-employed individuals escalate due to weak economic conditions
It's a challenging landscape, alright, says Ifo expert Katrin Demmelhuber. Nearly half of freelancers (48.4%) are grappling with a grim order situation. Predicting business growth is a daunting task for these self-employed individuals, according to Demmelhuber. The ongoing trade conflict with the USA might be a contributing factor to this dismal outlook.
The index for the current business situation takes a heavy blow, dipping to -19.4 points from -12.7 points in March. The future looks even bleaker, with expectations hitting an all-time low of -28.1 points in April, compared to -18.9 points last month.
The processing industry, vulnerable to US trade policy risks, is at the heart of the storm. Yet, the downturn isn't limited to manufacturing; it spills over to retail and service sectors too. "The optimistic post-election euphoria and financial package seem like a distant memory now for many small businesses," laments Matthias Henze, CEO of Jimdo. Large corporations slashing their budgets has a domino effect on smaller companies.
Since August 2021, the Ifo and Jimdo have been tracking the business climate index for solo self-employed individuals and micro-businesses with less than nine employees. The survey spans all sectors, with a particular focus on the service sector. Roughly 1,660 self-employed individuals and micro-businesses participate monthly.
- ** Order situation**
- ** Financial packages**
- ** VAT regulations**
- ** Administrative streamlining**
- ** USA**
The German Economic Landscape
- GDP Growth: German GDP grew by 0.2% in Q1 2025 compared to the preceding quarter [3].
- ** Inflation and Import Prices:** April 2025 anticipates an inflation rate of 2.1%, while import prices surged by 2.1% in March 2025 compared to March 2024 [3].
- New Orders in Manufacturing: Real new orders in manufacturing increased by 3.6% from February to March 2025, which could potentially ripple through to the service sector via supplier and client networks [3].
Changes in Regulations
- ** Revised VAT Thresholds:** Small businesses now benefit from higher VAT thresholds, with the limit based on net turnover (excluding VAT), reaching €100,000 for the current year if the previous year’s turnover was €25,000 or less [4].
- ** Administrative Simplification:** The new government proposes administrative streamlining acts to ease regulatory burdens for small businesses [1].
Trade Tensions with the USA
While explicit data on how trade disputes with the USA impact small businesses in the German service sector isn't readily available, trade tensions can trigger supply chain disruptions, erode client confidence, and impede export opportunities. Although the service sector is less directly affected than manufacturing, it may still incur indirect repercussions through expansive business networks. Furthermore, companies heavily reliant on international trade may find it challenging to adapt to changing regulatory landscapes and tariffs.
Government Initiatives
The new government's emphasis on compliance, digitalization, and simplifying administrative hurdles could create a more favorable environment for small service sector businesses. However, it remains to be seen how effectively these initiatives are implemented [1][2]. Proposed reforms, such as the abolition of certain regulatory frameworks (e.g., the LkSG) and the shift towards European compliance requirements, could significantly alter operational conditions for small businesses [2].
- The current struggle faced by freelancers and small businesses implies a need for comprehensive policy changes, including employment policies and community policies.
- The economic impact on self-employed individuals and micro-businesses is concerning, with a worsening order situation and predicting business growth being challenging due to factors like economic turmoil and the ongoing trade conflict with the USA.
- Government initiatives such as revised VAT thresholds and administrative simplification acts aim to ease the burden on small businesses, but the effectiveness of these changes remains uncertain.
- As the service sector is less directly affected by trade tensions with the USA than manufacturing, its indirect repercussions through expansive business networks should still be considered, as well as the potential challenges faced by companies heavily reliant on international trade.
