The global economy has begun to recover from the succession of recent shocks, including COVID-19, Russia’s war of aggression against Ukraine, and also other geopolitical tensions. As the international community continues to reflect on and adapt its policy responses to address the immediate impacts of these shocks, governments also need to consider the longer-term policy challenges. Small and medium-sized enterprises (SMEs) and entrepreneurs have been on the front-line of these developments and many countries provided significant policy support to shield them from the shocks. Now, building resilience to future crises and harnessing their potential to contribute to major economic, environmental, and societal transitions, will require more targeted efforts.

The SME and Entrepreneurship Outlook is a biannual flagship publication produced jointly by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE), led by Lamia Kamal-Chaoui, and the OECD Statistics and Data Directorate (SDD), led by Paul Schreyer. The report was prepared under the aegis of the OECD Committee on SMEs and Entrepreneurship (CSMEE).

Small and medium-sized enterprises (SMEs) and entrepreneurs have been greatly impacted by the COVID-19 pandemic and the fallout from Russia’s large-scale aggression against Ukraine, putting millions of jobs and businesses at risk. While most SMEs have little direct exposure to Russia and Ukraine, they have been affected by rising geo-political tensions, high inflation, tighter monetary and fiscal policy, and supply-chain disruptions. Since the start of the war, firm entries have also been growing at a much slower pace, in part reflecting the relatively high growth rates observed in countries as they recovered from the pandemic shock. At the same time, firm exits have risen substantially, as firms had to cope with the ensuing energy crisis and the withdrawal of fiscal support. Trends in bankruptcies have been accelerating in several European countries, and although they continued to fall in the United States in 2022, they have risen in the most recent period. Tight labour markets have also accentuated inflationary pressures, as well as access to skilled labour, compounding difficulties for small firms.

This chapter reviews recent developments in firm performance and identifies key challenges small firms will have to cope with in the short, medium and long term. Prior to the war in Ukraine, the recovery of the SME sector was essentially driven by stronger performance of micro-firms. SMEs engaged in international trade also performed well compared to non-trading SMEs. The war and the rise in energy costs have slowed down global growth and weighed on firm performance. Even though most SMEs have little direct exposure to Russia and Ukraine, they have been indirectly affected by geopolitical tensions and elevated uncertainty, high inflation, tightening financial conditions, and lesser monetary and fiscal support. Supply-chain disruptions and heightened labour shortages add to the challenges. Looking forward, digitalisation and the green transition are expected to alter the way firms operate. SMEs will have to upgrade their technical skills and knowledge to manage the twin transition.