Our standardized credit risk assessment (TRIBBot ) for roughly 22,000 German SMEs and MidCaps shows that median credit risk significantly decreased with the economic expansion in recent years but started to show the first signs of a trend reversal in recent quarters. In Q3 2018, the credit risk, i.e. the risk that a company may not be able to repay the loans granted or not completely, increased slightly for the first time since 2015, while at the same time, GDP showed the first decline in years (-0.1% q/q).
Germany’s economic output contracted again in Q2 2019 by -0.2% q/q, confirming the ongoing slowdown throughout 2019. Although SMEs are generally sensitive to economic downturns and are getting increasingly exposed, as a result of ongoing structural changes in various sectors, the subsequent amplitude of the increase in credit risk in Q3 and Q4 2019 signals not only a reaction to the weak economic environment but a general trend reversal. We expect the credit risk of SMEs to continue to rise in 2020. Overall, we expect business insolvencies to rise by +3% in 2020 after being stable in 2019.
Looking at sectors, the increase in credit risks was primarily limited to sectors that already had an above-average credit risk in the first place. Automotive suppliers have seen the biggest increase by far. The companies in this sector are exposed not only to growing political and economic risks but also to major structural changes, which has driven up their overall credit risk dis-proportionately. On the contrary, credit risk declined in Q1-Q4 2019 in the computers & telecom and construction sectors despite the generally negative cyclical trends. These sectors have been profiting the most from the still very robust consumer spending and strong construction activity in Germany.