KfW-ifo-SME Barometer

• SMEs: expectations improve for first time in nine months
• Large companies: climate brightens, but noticeably worse than for SMEs

For the first time after 9 consecutive declines in sentiment, small and medium-sized enterprises in Germany are somewhat more optimistic about the future again. This is the result of the KfW-ifo SME Barometer for November 2014. Business expectations rose by 4.2 points to 0.1 balance points, demonstrating that companies are anticipating a somewhat livelier business environment in the coming year than is currently the case. Views on the business climate are also generally better, but not by as much (+1.5 points to 9.5 balance points), as SMEs are less positive about their current business assessments than in the previous month (-1.3 points to 18.9 balance points).

Sentiment brightened in November for large companies too. Here there was not only an improvement in expectations (+1.6 points to -3.4 balance points), but also in business assessments (+3.9 points to 11.9 balance points), though the latter component had verily slumped in the previous month. Overall, the business climate for large companies rose by 2.8 points to 4.4 balance points.

The sentiment among large companies is currently worse across the board than for SMEs – especially in terms of expectations, which remain below the zero mark for the third consecutive month, despite the recent improvement. These differences are understandable though given the mixed economic stimulus. Dashed hopes for growth in Europe – the most important export market for the German economy – as well as geopolitical risks have triggered great uncertainty. This is not only hampering German export growth, but also prompting substantial investment restraint on the part of companies (as exporters and manufacturers of capital goods, large companies are disproportionately affected here).

On the other hand, private consumption and residential construction have been supporting the German economy for a long time, and will probably continue to do so. "The renewed upward trend in SME business expectations confirms our view that 2015 will see a recovery following an initially weak winter. This is contingent upon at least a modest upturn in the eurozone economy and the stabilisation of relations with Russia. Given the weak start to the new year we forecast real growth of just 0.8% for Germany in 2015, adjusted for calendar factors, after 1.4% in 2014," said Dr Jörg Zeuner, Chief Economist at KfW.