The unprecedented rise in energy prices due to the war in Ukraine has had a large but heterogenous effect on European SMEs according to a capstone project on ” The impact of energy prices on SME investment and profitability” led by LSE Masters students coordinated by the European Investment fund (EIF) and presented at the EIB in March 2023.
Price increases (+87% between 2021 and 2022) have large negative impacts on investments albeit smaller for energy intensive firms; and small and partially insignificant impacts on firms profitability. As anticipated by the students, financial constraints increase the impact on profitability for SMEs.
According to them, there is a trade-off between short term survival or long term impact on firm resilience with variations across energy carriers, firm sizes and sectors sometimes even variation in effect direction.
The students’ s findings provide support in favour of measures that aim to improve SMEs’ resilience to energy prices shocks, such as those contained in the InvestEU and REPowerEU programs.
In addition, they call for an improvement of firms quantitative as well as qualitative data collection in order to better monitor long term impacts.
Click here for the final results.
