The current KfW Business Cycle Compass for download:KfW Business Cycle Compass Germany/Eurozone
Further information about the KfW Business Cycle Compass
After six consecutive rises, the recovery in SME business sentiment has stalled. This was caused by a sharp drop in business expectations in an unchanged average business situation. Sentiment among large enterprises has fallen even more steeply. Sales price expectations, however, continue trending downward.
Corporate lending slowed in the final quarter of 2022 following record growth in summer. The easing of tensions in the energy markets and the subsiding of supply bottlenecks means that fewer loans are required to cover unplanned funding requirements. The increase in new loans from German banks to businesses and self-employed persons was, however, still significant at 19% year-on-year, as calculated by KfW Research. And that although the growth rate almost halved. We expect bank lending to continue to cool in the first half of 2023. In addition to higher interest rates, this will be due to lacklustre business investment and above-average difficulty in accessing bank loans.
KfW Credit Market Outlook March 2023(PDF, 275 KB, accessible)
Germany is poised for an economic recovery with one foot on the brake. Supply shocks are dissipating but the dampening effects of monetary policy are increasingly showing results. KfW Research expects growth of -0.3% in Germany for 2023 as a whole, a virtual stagnation, followed by moderate growth of 1.0% in 2024. Euro area GDP is likely to grow 0.8% in 2023 and 1.1% in 2024. Inflation in both economies is set to drop significantly from around 6% this year and get close to the 2% target again in 2024.
KfW Business Cycle Compass May 2023(PDF, 196 KB, accessible)
The KfW-ifo SME Barometer for April brings good news overall but also some bad news: On balance, business confidence in the SME sector rose moderately. That is the sixth consecutive increase, after the mood last autumn literally collapsed under the acute fear of an energy crisis. The increase, however, was driven solely by rising business expectations, as situation assessments deteriorated. We would be well advised to continue keeping our expectations for the 2023 business cycle low.
German businesses are able to access credit more easily again. The KfW-ifo Credit Constraint Indicator for the 1st quarter of 2023 is considerably below the previous high levels. Still, one quarter of small and medium-sized enterprises still perceive the behaviour of banks in loan negotiations as restrictive. Credit access therefore remains more difficult than average. The easing of lending policies is mainly attributable to the deescalation of the energy crisis. Loan defaults become less likely as a result of the improved economic risk situation.
KfW-ifo Credit Constraint Indicator Q1 2023(PDF, 138 KB, accessible)
Sentiment among SMEs continued to brighten with the advent of spring. Significant improvements in situation assessments as well as expectations boosted business sentiment in March. It was the fifth consecutive monthly increase. The last time businesses were more optimistic was in January 2022, just before the beginning of Russia’s invasion of Ukraine. Interestingly, SMEs are more satisfied with their current business situation than large enterprises.
SME sentiment continues to improve going into Lent. In February, the mood rose to the highest level since June of last year. This time, unlike in the previous month, both sentiment components contributed to the improvement. The sharply declining sales price expectations of enterprises give hope that the continuing high inflation will start to ease soon.
KfW-ifo SME Barometer February 2023(PDF, 191 KB, accessible)
An inflation shock, war-induced uncertainty, rising interest rates and a weak global economy are choking off economic growth for the time being. Germany is poised to slip into a moderate technical recession in the winter half of 2022/2023. GDP will just barely stagnate in 2023 and grow by 1.0% in 2024. Inflation will remain at a high 5.8% in 2023 and moderate to 2.1% in 2024. According to our ecological price tag for GDP, greenhouse gas emissions will decline, but the drop will be 6% and 7% below the 2023 and 2024 policy target. Euro area GDP will grow by 0.5% in 2023 and 1.2% in 2024. Inflation there will sit at 5.4% and 1.7%, respectively. Depending on the progression of the Russia-Ukraine war, significant forecast revisions may become necessary.
KfW Business Cycle Compass February 2023(PDF, 190 KB, accessible)
The mood among small and medium-sized enterprises improved yet again as they entered the new year. Their business sentiment rose for the fourth consecutive month in January, mainly on the back of improved expectations. Fears of a sharp economic downturn are increasingly waning.
Sentiment in the German private equity market developed positively in the fourth quarter of last year. The business sentiment indicator rose by 9.2 points to -30.8 balance points. While situation assessments deteriorated again, the decline was more than offset by improvements in business expectations. Economic optimism is bolstering sentiment.
German Private Equity Barometer 4th Quarter 2022(PDF, 231 KB, accessible)
Sentiment in the German venture capital market cooled off considerably towards the end of the year. After the downward slide in market sentiment ended in late summer, confidence slipped again in the final quarter. The business climate indicator of the early-stage segment plunged by 25.6 points to -42.9 balance points. With the exception of the unprecedented coronavirus shock in the first quarter of 2020, the only recent time sentiment was worse was 20 years ago. Valuation adjustments at the end of the year weighed heavily on market sentiment.
German Venture Capital Barometer 4th Quarter 2022(PDF, 179 KB, accessible)
In the final quarter of 2022, the KfW ifo Credit Constraint Indicator for small and medium-sized enterprises increased for the third consecutive time. Of the surveyed SMEs who were in loan negotiations, 31.3% regarded the policies of banks as restrictive – 3.4 percentage points more than in the previous quarter. With that, the Credit Constraint Indicator for SMEs reached a new record high since the current survey methodology was introduced in 2017. Tighter lending conditions affected mainly SMEs in retail (+8.6 percentage points) and the services sector (+6.7 percentage points). For manufacturers, on the other hand, the tense situation in the credit market appears to have eased slightly on the previous quarter (-2.9 percentage points).
KfW-ifo Credit Constraint Indicator Q4 2022(PDF, 152 KB, accessible)
For more than 70 years, economic growth in Germany could be seen as guaranteed. Those days are over, particularly as a result of weak productivity growth. If Germany sought to maintain per-capita GDP constant up to the year 2035 by increasing labour force participation or immigration alone, it would either have to raise the labour force participation rate far more rapidly than is currently the case or increase net immigration to more than 1.3 million people of working age. Securing present prosperity and future prosperity growth therefore requires a comprehensive mix of measures that also lead to stronger labour productivity growth. This paper draws up scenarios that highlight the requirements and possible responses.
Skills shortage marks a turning point: The times of guaranteed growth are over(PDF, 307 KB, accessible)
According to the current KfW Credit Market Outlook, new lending from banks and savings banks in Germany to companies and self-employed persons increased by a record high 36.1% in the third quarter of 2022. New lending growth thus increased by another 15 percentage points on the previous quarter. Towards the end of the year, however, credit growth has likely started to weaken.
KfW Credit Market Outlook December 2022(PDF, 223 KB, accessible)
According to the new KfW-ifo Skilled Labour Barometer, skills shortages were affecting operations at 46% of businesses at the start of the fourth quarter. The shortage of skilled labour has further increased since the previous year despite the Ukraine crisis. Skilled workers are missing in all sectors of the economy, especially in services industries, where nearly half of enterprises are hampered by a lack of skilled labour. Job openings are now vacant for an average of five months and recruitment times are becoming much longer. One of the causes for this is the weak growth of labour productivity. In the past five years, labour productivity per person employed has nearly stagnated.
KfW-ifo Skilled Labour Barometer December 2022(PDF, 282 KB, accessible)
SME business sentiment improved for the third consecutive month. It rose 4.9 points to -14.5 balance points in the lead-up to Christmas. Expectations began to improve already in October and continued to rise but situation assessments also improved now for the first time since June. Sales price expectations dropped sharply.
KfW-ifo SME Barometer December 2022(PDF, 121 KB, accessible)
SME business sentiment jumped by 3.6 points to -19.7 balance points in November. The shift in the gloomy sentiment was solely the result of a strong improvement in expectations, while situation assessments deteriorated again. Businesses recognise that the risk of a gas shortage has decreased and are probably reacting favourably to the most recent support package by the federal government. In a historical comparison, however, they remain very pessimistic.
KfW-ifo SME Barometer November 2022(PDF, 162 KB, accessible)
Dwindling purchasing power, enormous uncertainty, rising interest rates and a weak global economy are weighing on economic activity in Germany. After growing by 1.7% in 2022, GDP will contract by 1.0% in 2023. The very steep rises in energy prices due to the war are increasingly filtering through. Inflation will be a very high 8.8% in 2022 and only dip to 6.2% on average across the year 2023. Greenhouse gas emissions will decline, but the drop will be 6% and 5% below the policy target in 2022 and 2023, respectively, as shown by our new indicator, the Ecological Price Tag for GDP. The euro area economy will grow by 3.3% in 2022, and GDP will stagnate in 2023. Given the multiple crisis situation, upward and downward forecasting risks are significantly larger than usual.
KfW Business Cycle Compass November 2022(PDF, 172 KB, accessible)
The disruption to economic conditions resulting from energy shortages, supply problems and the resulting price pressure is also evident in the corporate credit market. German businesses and self-employed persons extensively took out new bank loans in the second quarter, despite the imminent recession and increasingly tighter financial conditions.
According to calculations by KfW Research, new lending grew by a massive 21.3% year on year. That is a new record.
The main driver for this strong growth was a combination of high funding requirements for working capital and inventories, KfW loans to companies in the energy sector on behalf of the Federal Government to secure energy supplies, as well as the very weak lending in the second quarter of 2021.
KfW Credit Market Outlook October 2022(PDF, 129 KB, accessible)
Whereas small and medium-sized enterprises repeatedly saw their confidence levels literally plummet in the previous months, sentiment fell by only 0.1 point in October, thus moving virtually sideways on a very low level of -23.8 balance points in what remains a difficult environment shaped by material shortages, an inflationary surge and the war in Ukraine. The partial stabilisation is due to the somewhat less pessimistic business expectations. The German Federal Government’s fiscal support package and the decreased likelihood of a gas shortage are both likely to have bolstered expectations.
The German private equity market experienced yet another sharp loss of confidence in the third quarter of this year. The business climate indicator fell by 16.2 points to -40.4 balance points. The only time the level has ever dropped this low was during the financial crisis at the beginning of 2009 and the outbreak of the coronavirus pandemic in 2020. Expectations are significantly lower than situation assessments, indicating that private equity investors anticipate a continuing substantial deterioration of the business environment in the next six months.
German Private Equity Barometer 3rd Quarter(PDF, 201 KB, accessible)
KfW Research Position paper
Russia’s war of aggression against Ukraine and the COVID-19 pandemic have shaken the foundations of a rules-based world order and the German economic model. Even amid the necessary short-term crisis management, investments are key to successful adaptation to the changed environment. They make restructuring energy supplies and the green and digital transformation possible – and demand a joint effort by government, the business community and private households. The lion’s share of necessary investment will have to come from the private sector. The current burdens from high energy costs and uncertainties act as additional roadblocks. So it is all the more important to encourage and provide intelligent support for private investment. Government therefore has a key role to play: first, by formulating targets and setting frameworks and incentives and second, by investing in infrastructure and human capital, both of which are required for the productive realisation of private-sector activity.
A boost in investment for the transformation – what exactly is needed?(PDF, 220 KB, accessible)
Further information The coronavirus crisis and its impact
Sentiment in the German venture capital market stabilised in late summer. Market sentiment has thus stopped falling, although central banks again significantly raised key interest rates to fight inflation in the third quarter of 2022. The sentiment indicator of the early-stage segment remains virtually unchanged at -17.9 balance points (+0.3 points). Situation assessments and expectations have converged. Thus, the indicator for the current business situation dropped moderately, while the indicator for business expectations rose slightly.
German Venture Capital Barometer 3rd Quarter(PDF, 240 KB, accessible)
SMEs barely have time to catch their breath after the coronavirus pandemic. The Ukraine war and the energy crisis are now causing them trouble. Energy prices are the number one uncertainty and their effects have yet to filter through in full. Business sentiment has deteriorated significantly. Already there are signs that companies are reluctant to invest, pressure on equity ratios is mounting and credit access is becoming more difficult in 2022. SMEs at least entered the current crisis on a solid foundation. In 2021 they largely recovered the deep losses they suffered in the first year of the crisis. Turnover, employment and profitability increased and equity ratios also recovered noticeably in the past year. These are the findings of the KfW SME Panel 2022, which paints a comprehensive picture of the present situation in autumn of 2022 and of the development of small and medium-sized enterprises during the past year.
Financing conditions for small and medium-sized enterprises deteriorated abruptly in the third quarter. The KfW-ifo Credit Constraint Indicator for SMEs experienced a considerable spike to reach a record high. Of the businesses engaged in loan negotiations, 27.9% reported restrictive bank lending policies.
SMEs currently facing the greatest difficulties in accessing credit are service providers, followed by manufacturers. The energy crisis, rising interest rates and the foreseeable recession are likely to be the main factors causing banks to tighten their lending policy towards SMEs. Credit institutions are still significantly more accommodating towards large enterprises. The Credit Constraint Indicator for this size class has dropped over two consecutive quarters and now sits at a mere 11.2%.
KfW-ifo Credit Constraint Indicator Q3 2022(PDF, 256 KB, accessible)
It has been a frosty start to autumn, at least where SME sentiment is concerned. The constant flow of bad news around the war and the energy crisis caused SME business confidence in September to plunge nearly three times the rate of a typical monthly variation. Situation assessments und expectations both deteriorated sharply. GDP probably contracted already in the summer, and at least two further negative quarterly rates will follow. Germany is drifting into recession.
KfW-ifo SME Barometer September 2022(PDF, 227 KB, accessible)
The cocktail of exploding energy costs, waning purchasing power, major uncertainties around natural gas supplies and the ongoing war in Ukraine is increasingly spoiling the mood among SMEs. SME business sentiment dropped for the third consecutive month in August. Situation assessments continue to slide and expectations are more pessimistic than almost ever before. We expect the German economy to contract by 0.3% in 2023 after growing by 1.4% in the current year.
The Annual Economic Report 2022 of the German Federal Government recommends focusing more rigorously on the consequences of economic activity, particularly for the environment and climate. We propose a simple approach for systematically integrating the expected greenhouse gas emissions into our economic forecast for Germany. It currently indicates that greenhouse gas emissions will drop in 2022 and 2023, albeit less than intended. The approx. 38 million t CO2 equivalent in average annual emissions exceeding the target level are practically equal to the total GHG emissions of Slovakia in the pre-pandemic year 2019.
GDP forecasting and greenhouse gas emissions – an integrated approach(PDF, 214 KB, accessible)
Focus on Economics
The transition to net zero and the digitalisation drive will significantly increase global demand not just for bulk metals such as copper but also for special metals such as lithium, rare earths and cobalt. Germany and Europe are heavily dependent on imports of these resources. Extraction and processing of special metals is subject to high supply concentration in individual countries, which for some is higher than for oil and gas production. For the positioning of European businesses in the area of strategic technologies such as lithium-ion batteries and solar technology, China’s strong market power is a particular challenge for the supply of raw materials and for Europe as a technology location in general. Pushing ahead with the circular economy, expanding resource extraction in Europe itself and diversifying international procurement sources are key to increasing the continent’s resource security.
Securing critical raw materials for the net zero and digital transformation(PDF, 295 KB, accessible)
The economic outlook has deteriorated further. After the catching-up movement in the services sector has been largely completed, economic headwinds now predominate. Both Germany and the euro area can be expected to see negative quarterly growth rates by the winter half-year at the latest. After growth of 1.4% in the current year, we expect Germany’s GDP to contract by 0.3% in 2023. A gas shortage would create a genuine recession in 2023 (-2.5%). Thanks to a strong first half, euro area GDP growth will still be a good 3.0% in 2022 but probably sit at 0.5% in 2023. Inflation will not trend downward until sometime in 2023. Inflation in Germany will stand at 8.4% in all of 2022 before dropping to around 5% in 2023. Euro area inflation rates can be expected to be on a similar level.
KfW Business Cycle Compass August 2022(PDF, 139 KB, accessible)
The German private equity market experienced a further loss of confidence in the second quarter of this year. The sentiment indicator of the later-stage segment fell by 17.8 points to -24.7 balance points. Business expectations were more heavily affected than situation assessments. The indicator for the current business situation slipped by 13.2 points to -10.9 balance points. The indicator for business expectations plunged by 22.5 points to -38.5 balance points.
German Private Equity Barometer 2nd Quarter(PDF, 154 KB, accessible)
A historic interest rate increase by the Fed in the US and expectations of a tighter course by the ECB caused sentiment in the German VC market to continue nosediving in the second quarter. The business climate indicator of the early-stage segment dropped by 26.0 points to -18.5 balance points. Business expectations have fallen more sharply than situation assessments. The indicator for the current business situation dropped to -7.6 balance points (-20.6), while the indicator for business expectations fell by 31.4 points to -29.4 balance points.
German Venture Capital Barometer 2nd Quarter(PDF, 180 KB, accessible)
KfW Research has calculated that new lending to enterprises and self-employed persons took another leap in the first quarter. New bank loans grew by 15.5% on the first quarter of last year. The strong credit growth is mainly attributable to short-term financing requirements to build up larger inventories as buffers for disrupted supply chains and the drive to secure interest rates against the background of monetary tightening.
KfW Credit Market Outlook July 2022(PDF, 116 KB, accessible)
After a brief phase of stabilisation, SME business confidence nosedived again at the start of the summer quarter. In July it plunged 9.5 points to -15.3 balance points, a variation nearly four times the usual monthly rate. The already very pessimistic business expectations continued to fall and situation assessments also deteriorated markedly.
Small and medium-sized enterprises needing loans are facing much more restrictive lending policies. After a moderate easing, the KfW ifo Credit Constraint Indicator rose in the second quarter to 20.8%.
The economic forecast in Germany has become considerably more cloudy as a result of Russia’s attack. High energy costs and rising interest rates lead to banks being more cautious when granting loans. SMEs in almost all business areas are affected by this. The retail sector, however, is the exception, which has profited from the lifting of most of the protection measures.
KfW-ifo Credit Constraint Indicator Q2 2022(PDF, 148 KB, accessible)
Sentiment among large enterprises fell sharply in June, while SMEs reported steady business confidence overall. Underlying this, however, are opposing trends in situation assessments and expectations, as well as significant sectoral differences. While situation assessments have improved for the third consecutive month, expectations are becoming increasingly pessimistic. Most of all, the significantly higher probability that Russia will halt its supplies of natural gas is good reason to fear a recession.
The slight improvement in sentiment among SMEs continued in May for the second consecutive month. Nevertheless, confidence remains well below the level recorded before Russia invaded Ukraine. Moreover, this time only the situation assessments improved, while business expectations became even more pessimistic. Enterprises are staring down an economic abyss. How deep they will fall, however, is a different matter.
After the pandemic slump of 2020, start-up activity in Germany returned to pre-crisis levels in 2021. Compared with 2020, 70,000 more newcomers (+13%) ventured into self-employment, launching 607,000 new businesses. The number of opportunity start-ups increased. Entrepreneurship has also become younger and more female. And with the experience of the coronavirus pandemic, significantly more business start-ups were digital and internet-based in 2021. Despite a declining rate of planners, entrepreneurial activity is expected to remain on a similar level in 2022 as in 2021.
KfW Entrepreneurship Monitor 2022(PDF, 540 KB, non-accessible)
The war in Ukraine has dashed hopes of a vigorous economic rebound and is driving inflation. Germany’s GDP will grow by only 1.6% in 2022, with economic growth even falling to 1.2% in 2023. While the dampening effects of the pandemic are waning and the services sector is recovering somewhat over the spring and summer months, Russia’s war of aggression is prolonging global supply chain problems, driving up energy costs and putting pressure on purchasing power. Germany’s inflation rate will be a very high 6.3% in 2022 but will drop to 3.0% in 2023. The euro area is set to grow by 2.5% in 2022 and 1.3% in 2023; consumer prices there will increase by 6.4% in 2022 and 3.1% in 2023. Our new forecast is based on the assumption of persistently high energy prices but no natural gas embargo.
KfW Business Cycle Compass May 2022(PDF, 244 KB, accessible)
In April 2022, 44% of all businesses were impacted by skills shortages. They have therefore grown into a much more common production obstacle than before the pandemic. All sectors are affected. Shortages were disrupting operations at 40% of manufacturing firms, the highest share in the past 30 years by a wide margin.
KfW-ifo Skilled Labour Barometer May 2022(PDF, 250 KB, accessible)
The business climate on the German Venture Capital market has fallen again two years after the coronavirus shock. The business climate indicator of the early-stage segment dropped by 35 points to 7.2 balance points in the first quarter of 2022. This was likely due to the inflation-induced accelerating interest rate reversal and the heightened economic uncertainty caused by the war. The indicator for the business situation dropped to 12.8 balance points (-33.0), while the indicator for business expectations fell to 1.7 balance points (-37.0).
German Venture Capital Barometer: 1st Quarter 2022(PDF, 152 KB, accessible)
The business climate on the German private equity market cooled off drastically at the start of the year. The sentiment indicator of the later-stage segment slipped by 27.5 points to -7.2 balance points. The escalation of the war in Ukraine and resulting high economic uncertainty were likely the main cause for the drop in sentiment. The indicator for the current business situation fell by 24.4 points to 2.2 balance points, hovering just slightly above the long-term average. The indicator for business expectations plunged by 30.6 points to -16.5 balance points.
German Private Equity Barometer:1st Quarter 2022(PDF, 171 KB, accessible)
There was a change in trend in the final quarter of 2021. New bank loans grew 8.2% year on year. Banks had great incentive to show sufficient net lending at the end of the special reference period for TLTRO III operations in order to receive the ECB’s special interest conditions.
Russia’s shocking attack on Ukraine has brought great uncertainty for the development of the economy. Survey data from banks and businesses gathered after the start of the war does, however, speak in favour of lasting growth in the first half year. After that, new business will lose its momentum, as financing conditions look set to tighten. Banks are reassessing default risks against the backdrop of the war and interest costs have been rising again noticeably after a long time as a result of the gradual tightening of monetary policy.
For now, German SMEs have overcome the immediate shock of the war. Their business sentiment improved again slightly in April after collapsing the month before as a result of Russia's attack on Ukraine. Still, the rise makes up for just barely one eighth of the March decline. Where the economy is heading depends on many unknowns.
Access to credit improved for small and medium-sized enterprises in the first quarter. The KfW-ifo Credit Constraint Indicator fell to 17.7% and has thus decreased by nearly 5 PP within a year. Given Russia’s attack on Ukraine, it is doubtful whether the easing of credit constraints will continue. The war in the heart of Europe is weakening the economy through a massive increase in the cost of energy, by exacerbating material bottlenecks and by generating enormous uncertainty. Financial institutions are therefore likely to reassess default risks and readjust their lending policy. The sharp tightening of credit constraint for large enterprises (+6.2 percentage points to 14.2%) could be a first sign of this. Large manufacturing firms, which are closely integrated into the international division of labour, have been hit particularly hard.
KfW-ifo Credit Constraint Indicator April 2022(PDF, 138 KB, accessible)
SME business sentiment in Germany has fallen abruptly as a reaction to Russia’s invasion of Ukraine. At -9.4 points it is now on a similar level as during the second COVID-19 wave in the winter of 2020/2021. The drop was driven primarily by business expectations, which plunged dramatically by 25.9 points, the sharpest decline recorded since the beginning of the time series. By contrast, companies rate their current business situation only slightly lower than in the previous month. The impact on the economy will ultimately depend on the duration of the war and the spiral of escalation in military action and sanctions.
The easing of the pandemic led to a strong, broad-based improvement in business sentiment among SMEs. Business situation assessments and expectations both improved very significantly. Confidence improved noticeably among large enterprises as well. In ordinary times one would have been able to openly rejoice about this trend. But these times are anything but ordinary. Now a new war in Europe and the resulting sanctions hang over further economic developments like a sword of Damocles.
KfW-ifo SME Barometer February 2022(PDF, 180 KB, accessible)
Following the significant setback in the autumn of 2021, the pandemic also put a damper on the economic start to the year. The very high infection rates have meant that a good one percent of the workforce has been absent from work on average during the first quarter, contributing to weak growth at best. After that, however, growth is likely to resume at a much faster pace because the planned lifting of most restrictions will give a boost to private consumption. Material bottlenecks will likely improve in the course of the year to a degree that allows manufacturing to generate strong growth as well. Very high energy prices are creating strong headwinds, however, reducing purchasing power and weighing on energy-intensive production. Overall, KfW Research expects growth of 3.2% in Germany in 2022, followed by 2.9% next year. We expect 3.6 and 2.7% for the euro area. Russia’s invasion of Ukraine constitutes a major risk to the economy.
KfW Business Cycle Compass February 2022(PDF, 244 KB, accessible)
In the fourth quarter of 2021, German venture capital market sentiment remained on the record high level of the previous quarter. The sentiment indicator for the early-stage segment continued on 41.6 balance points, ending the year 2021 on an all-time high. On average for the year, sentiment was clearly the highest after 2018 since the barometer was launched.
German Venture Capital Barometer: 4th Quarter 2021(PDF, 196 KB, non-accessible)
After stagnating in the previous quarter, sentiment in the German private equity market resumed its upward trend at the end of the year. The sentiment indicator of the late-stage segment rose by 9.4 points to 20.2 balance points. Assessments of the current business situation improved for the seventh consecutive quarter and expectations were also slightly more optimistic.
German Private Equity Barometer: 4th Quarter 2021(PDF, 193 KB, non-accessible)
In January many are driven by hope for the summer, especially in times of a pandemic. This is particularly true for small and medium-sized enterprises, which are currently grappling with mandated restrictions, consumer restraint or indirect pandemic consequences such as global supply bottlenecks. The current KfW-ifo SME Barometer illustrates that, although many of them deplored a further deterioration in the business situation at the start of the year, they also hold a much more optimistic view of the near future again.
KfW-ifo SME Barometer January 2022(PDF, 141 KB, non-accessible)
Towards the end of the year banks were more accommodating to potential borrowers from the business sector despite the worsening pandemic situation. For SMEs, however, the KfW ifo Credit Constraint Indicator fell only marginally, while large enterprises significantly benefited from easier credit access. Fewer than one in ten large enterprises had recently deplored restrictive lending policies.
During the same period, SMEs’ credit demand grew again moderately after five consecutive declines. Compared with the long-term average, however, credit demand remains weak. Omicron and global supply chain disruptions are major adverse factors weighing on investment sentiment which are dampening the associated demand for finance.
KfW-ifo Credit Constraint Indicator February 2022(PDF, 124 KB, non-accessible)
The slump in the German credit market has bottomed out. That is good news at the end of the year, although it should be regarded with some caution. After all, in the third quarter banks again extended 7.6% fewer new loans than in the previous year.
But lending growth could turn positive again as early as in the final quarter. However, much of the improvement is attributable to the elimination of the negative base effect. Besides, businesses’ need for external finance is also likely to increase slightly more strongly than anticipated. Persistent bottlenecks are contributing to this, making inputs and investment projects more expensive. This increases the associated funding requirements.
The emergence of Omicron has significantly disrupted the economic conditions again. We expect increased volatility in lending business and currently do not anticipate a sustained strong recovery of the credit market until the second half of the year.
KfW Credit Market Outlook: 4th Quarter 2021(PDF, 128 KB, non-accessible)
Omicron is drawing new worry lines on the faces of managers in small and medium-sized enterprises. SME business sentiment worsened noticeably in December, continuing the downward trend that began in July and paused only in October. For the first time since April, sentiment has thus dropped again below the historic average. The expectation component alone is actually deep in pessimistic territory now. Dark clouds are gathering on the economic horizon this winter and dimming the outlook for 2022.
KfW-ifo SME Barometer December 2021(PDF, 100 KB, non-accessible)
Business sentiment in the SME sector fell sharply in November. Business situation assessments and expectations are both plummeting. While concern over the pandemic is weighing on the services segment and many retailers, manufacturers are bemoaning persistent supply bottlenecks. Given the shortages, many small and medium-sized enterprises of all sectors are planning to increase their prices as never before.
KfW-ifo SME Barometer November 2021(PDF, 145 KB, non-accessible)
Business sentiment in the German venture capital market continued to improve in the third quarter of 2021. The business climate indicator of the early-stage segment rose by 4.9 points to 42.2 balance points, slightly surpassing the all-time high of the previous quarter. The indicators for fundraising and deal flow remained very good. Sentiment components such as exit opportunities and the tax framework, on the other hand, showed more pronounced variations.
German Venture Capital Barometer: 3rd Quarter 2021(PDF, 219 KB, non-accessible)
German GDP will grow by a much stronger 4.4% in 2022 compared with 2.6% in 2021. After stagnating in the winter as a result of supply chain bottlenecks and pandemic-induced losses in contact-intensive services segments, quarterly growth will really pick up steam again from the spring. Manufacturing orders are at record high levels and will generate a strong output increase in 2022 as soon as bottlenecks ease. And as the pandemic is contained, consumption will also gain momentum again, especially since households have built up considerable excess savings which will enable them to at least mitigate losses in purchasing power due to higher energy prices. The euro area is set to grow by 4.2% in 2022 after 5.0% in 2021.The pandemic remains the primary risk, as vividly illustrated by the newly detected Omicron virus variant.
KfW Business Cycle Compass November 2021(PDF, 90 KB, non-accessible)
German private equity market sentiment continued on the same level in the third quarter of 2021. The business climate indicator for the later-stage segment remained nearly unchanged at 11.1 balance points. Assessments of the current business situation improved, while expectations were somewhat more pessimistic again. The individual sentiment components also changed little compared with the previous quarter and showed a positive picture overall.
German Private Equity Barometer: 3rd Quarter 2021(PDF, 193 KB, non-accessible)
In October 2021, 43% of all businesses were impacted by skilled labour shortages. Because of the coronavirus crisis, that share was only 23.7% in October 2020. Consequently, since the summer the shortage of skilled labour has grown into a much more widespread hurdle to production than before the pandemic. All sectors are affected. Skilled labour shortages impacted operations at 37% of manufacturing firms, the highest share in the past 30 years by a wide margin.
KfW-ifo Skilled Labour Barometer 4th quarter 2021(PDF, 131 KB, non-accessible)
After deteriorating over the past three months, SME business sentiment broke its downward trend to improve again slightly in October. The rise was due to improved situation assessments as well as marginally more optimistic expectations. The decline in sentiment among large enterprises, however, continued unabated.
KfW-ifo SME Barometer October 2021(PDF, 147 KB, non-accessible)
The KfW SME Panel 2021 shows that small and medium-sized enterprises got through the crisis year 2020 with relatively few bruises. Flexibility and adaptability enabled SMEs to survive the impact of the coronavirus crisis successfully. In particular, the rapid expansion of digital sales channels limited turnover losses to EUR 277 billion. Despite the worsened income situation, the feared massive depletion of the equity base of broad sectors did not materialise. The overall capital structure of SMEs is robust. However, small businesses sustained significant losses and investment also suffered. More plans were put off than ever before, while smaller crisis adaptation projects predominated. Businesses continue to face major challenges as they begin the transition to a climate-neutral economy and scramble to catch up in the digitalisation race.
Focus on Economics
In the coming years there will be a significant need for debt consolidation resulting from crisis-driven higher debt levels, while significant public investment will become necessary at the same time. It is therefore important to take a closer look at the structure and, above all, the efficiency of government expenditure. That means examining the relationship between the output achieved in pursuing the objectives of expenditure and the money spent. This paper provides input for reflection on this issue. We examine the efficiency of government expenditure in Germany in an international comparison on the basis of current indicators, focusing on the areas of education and infrastructure. Overall, Germany’s public sector so far appears to be quite efficient in both categories. Since the output is rather average, however, the efficiency primarily results from the comparatively low amounts spent on these areas. Remaining efficient even with higher expenditures will be a major challenge.
Government spending: efficiency also matters(PDF, 273 KB, non-accessible)
Developments in the credit market are currently shaped by remarkably weak loan demand from businesses, according to the current survey conducted for the KfW-ifo Credit Constraint Indicator. Fewer and fewer businesses are requesting loans from banks. In the third quarter, the share of SMEs in loan negotiations dropped significantly to below 18%, marking a new record low.
Credit constraints developed unevenly over the same period, remaining higher than average for both enterprise size classes. But after dropping in the previous quarter, credit hurdles were again higher for SMEs. Tighter restrictions are affecting small and medium-sized service providers in particular.
KfW-ifo Credit Constraint Indicator October 2021(PDF, 111 KB, non-accessible)
German companies and the self-employed took out considerably fewer loans in the second quarter than in the previous year. According to calculations by KfW Research, new lending by banks and savings banks with commercial customers shrank by 12.7%. The last time there was a higher percentage decline was during the global financial crisis.
The driving force behind the weakness remains low corporate loan demand. In particular, new loans for short-term funds up to one year are at a low level. The better economic situation and the accelerated flow of state aid payments are likely to be decisive for this.
Even if there is much to suggest that credit growth may emerge from the trough in the second half of the year, it will still take a while for growth rates to turn positive again. In our estimation, this should be the case in early 2022.
KfW Credit Market Outlook September 2021(PDF, 119 KB, non-accessible)
Focus on Economics
The German economy will grow at a significantly slower pace this year than was forecast just a few months ago. This is due in part to supply bottlenecks for materials and inputs, which have also affected broad areas of the SME sector. Shortages have impacted nearly half of all small and medium-sized enterprises and almost 80% of manufacturing and construction firms.
As a consequence, production has been disrupted and companies are unable to meet delivery deadlines, are forced to decline customers’ orders and adjust prices. Around one in four SMEs have to pass on to their customers the price increases for raw materials such as steel, timber or plastic and inputs such as microprocessors, which have in part been considerable. The impact on employment has been rather minor so far. Nevertheless, only few businesses believe the supply bottlenecks will be resolved quickly.
Supply bottlenecks are significantly impacting all areas of the SME sector(PDF, 165 KB, non-accessible)
Focus on Economics
The slowdown in the momentum of globalisation is pushing enterprises to reassess the viability of their business models, realign their export strategies and develop new sales potentials. The Prognos study identifies three main areas in which German businesses can make adjustments: One option is to focus more strongly on the domestic market, another is to develop new, innovative export goods or services. Here, growth opportunities arise primarily from the megatrends of demographic change, digitalisation and climate and environmental protection. A third strategy consists of tapping into new, promising export markets, particularly in emerging and developing countries. This offers different starting points for policymakers to support enterprises.
Low globalisation momentum requires adjustment of German companies’ growth strategies(PDF, 238 KB, non-accessible)
Focus on Economics
The effects of globalisation on growth, value added and employment in Germany in the next ten years are analysed with the aid of three scenarios. A renewed globalisation surge with a strong increase in openness to trade, with an average growth of gross domestic product of 1.2% per year between 2023 and 2030 is the best scenario, while a deglobalisation and, thus, decreasing openness with 0.9% growth is the worst scenario for the German economy. Between these two lies the scenario of a continuation of the slower globalisation of the past ten years, which is considered to be the likeliest of the three.
What’s next for Germany’s growth model? Scenarios for globalisation(PDF, 263 KB, non-accessible)
Business sentiment among small and medium-sized enterprises has embarked on a downward trend, dropping for the third consecutive month. Just like the weather, economic activity this late summer was a mixed bag. Particularly in manufacturing, confidence has dropped significantly as a result of the widespread shortages of materials and transport capacity. But there are bright spots, as sentiment is improving among service providers and, in particular, the construction industry..
KfW-ifo SME Barometer September 2021(PDF, 96 KB, non-accessible)
Focus on Economics
Digitalisation is an integral part of SMEs' day-to-day operations. Basic digital skills such as knowing how to use computers, tablets and standard software is of great importance for more than 80% of small and medium-sized enterprises (SMEs). In addition, one quarter of SMEs have a need for advanced skills such as programming and data analysis. A supplementary survey to the KfW SME Panel has shown that one in three SMEs lack urgently needed digital skills. A broad training campaign could prevent the shortage of digital skills from becoming a major barrier to digital structural change.
German SMEs lack digital skills, need more training (PDF, 219 KB, non-accessible)
After the lockdown measures were largely lifted, the highly transmissible Delta variant has unleashed a fourth coronavirus wave in Germany. At the same time, the shortages of materials and supplies in the manufacturing sector are proving to be more persistent than initially assumed. Both of these factors are fuelling concerns over the future economic recovery, dragging down SME business sentiment for the second consecutive month in August. The sole driver of the renewed drop was again the expectation component of the business climate, whereas situation assessments rose to a new annual high.
KfW-ifo SME Barometer August 2021(PDF, 140 KB, non-accessible)
Focus on Economics
The impact of the coronavirus pandemic has hit the entire SME sector. A current study shows which groups of enterprises get through the crisis more easily and which ones struggle. KfW Research has published a position paper proposing economic policy measures so that Germany emerges stronger from the crisis. The coronavirus crisis has had a significant impact on the SME sector. The current study by KfW Research reveals that the crisis has not impacted all SMEs in equal measure but affects individual segments more than others. Small businesses, internationally active companies and enterprises that already had a weak credit rating in particular suffered declines in their equity ratios. By contrast, enterprises whose credit rating indicates well-developed management skills exhibit greater crisis resilience, as do those that carried out innovation and digitalisation projects already before the crisis.
Which enterprises have been hit hardest by the coronavirus crisis and what lessons can we learn from it?(PDF, 209 KB, non-accessible)
Despite the fact that incidence rates are rising again, the vaccination programme and the risk-based relaxation of the containment measures offer hope that Germany will get on top of the coronavirus pandemic in the foreseeable future. Accordingly, questions about what happens next are coming more to the fore. At the same time, we are able to better assess the size of the challenge involved in transforming to a resilient, digital and climate-neutral economy. The need to change course is becoming ever more urgent if we are to make Germany future-proof. We see the greatest need in five key areas of action: Crisis resilience, climate neutrality, digitalisation, globalisation and Europe. A targeted approach is necessary in order to harness the crisis-management momentum for the change of course towards sustainable recovery. The aim of this paper is to highlight specific intervention points for solutions within the areas of action already identified.
KfW Research Position Paper August 2021(PDF, 241 KB, non-accessible)
Growth is back. Thanks to the at times marked fall in the number of infections, the economy recovered in the second quarter, with German GDP growing by 1.6% and euro area output even by 2.0%. The catch-up effect in the services sector and strong private consumption are set to generate strong growth in the current quarter that will continue at a more moderate pace in autumn. The Delta variant and, in particular, supply shortages are reducing upside potential, which is why we expect growth of only 3.0% in Germany in 2021. A statistical overhang and the backlog of industrial orders are set to generate a plus of 4.2% in 2022. Given the surprisingly strong first half of the year in other member states, we have revised our forecast for this year’s growth in the euro area upwards. We now expect 4.7%, followed by 4.3% in the coming year.
KfW Business Cycle Compass August 2021(PDF, 161 KB, non-accessible)
The upturn in sentiment in the German venture capital market continued in the second quarter of 2021. The sentiment indicator of the early-stage segment rose by 10.5 points to 37.8 balance points, marking a new record high. The record high sentiment has been fuelled by the sentiment components fundraising, exit opportunities and strength of deal flow. All three achieved top scores. The IPO climate improved the most for the exit opportunities, which the well-filled IPO calendar reflects.
German Venture Capital Barometer 2nd Quarter 2021(PDF, 227 KB, non-accessible)
Business sentiment in the German private equity market continued to grow positively in the second quarter of 2021 and is back above the long-term average for the first time since the coronavirus shock. The sentiment indicator of the late-stage segment rose by 25.7 points to 13.4 balance points. Business expectation assessments rose one and a half times as strongly as assessments of the current business situation. Encouragingly, climate components largely demonstrate positive values, with fundraising leading the way.
German Private Equity Barometer 2nd Quarter 2021(PDF, 209 KB, non-accessible)
Focus on Economics
The coronavirus pandemic has dramatically changed our patterns of consumption and behaviour. Some of these changes are likely to remain in place even after the end of the pandemic. The findings of a special survey conducted as part of the KfW SME Panel show that this will have a lasting impact on demand for products and services provided by small and medium-sized enterprises (SMEs) in Germany. Around 14% of SMEs expect stronger demand for their products and services after the crisis. But at the same time, 17% of SMEs expect a permanent drop in demand. The affected segment of the business sector will probably not be able to avoid a transformation process. The task will be to support this process with appropriate promotional measures and workforce training programmes.
No way back: Many SMEs expect the coronavirus crisis to have a lasting impact on product demand(PDF, 158 KB, non-accessible)
For a long time, business sentiment among SMEs knew only one direction – up. This has now suffered a setback and has fallen for the first time since January. Concerns about newly rising incidence rates are the main reason. Business sentiment among small and medium-sized enterprises is declining solely due to expectations, while the situation assessment is showing a moderate improvement.
In the second quarter of 2021 the share of enterprises in loan negotiations continued trending downward, although the decline in the SME sector was slightly more moderate than in the previous quarters.
Uncertainty about the easing of temporary supply bottlenecks and the impact of virus variants has likely contributed to credit demand declining for over a year now.
Banks are restricting their lending criteria slightly to large enterprises, particularly construction firms. SMEs, especially manufacturers and service providers, can access credit much more easily again.
KfW-ifo Credit Constraint Indicator July 2021(PDF, 169 KB, non-accessible)
Focus on Economics
Inflation and interest rates in industrialised countries (ICs) have trended downward for a good 30 years now. Today they are well below their long-term average. Central banks and their low and negative interest rate policies are an important but by no means the sole driver of this development. Rather, demographic processes, the rise of China and advancing globalisation since the 1990s are likely to have been the main factors that have exerted downward pressure on price and interest levels. This means that even without the monetary policy responses to the crises of the past decade interest and inflation rates today are likely lower than as recently as in the 1990s, for example. Our study discusses the impact chains of these processes in greater detail and explains that longer-term upside risks to inflation and interest rates in ICs are likely to result primarily from the reversal of the former.
Are higher interest rates and inflation ahead? A long-term view beyond the pandemic(PDF, 209 KB, non-accessible)
As the pandemic situation has clearly eased, SME sentiment in June surged again at a similar pace as in May, almost matching the level of large enterprises. The improvement in business situation assessments was the second strongest since the beginning of the time series in January 2005, while SMEs’ expectations were more optimistic than they have been for more than ten years now. Now it is crucial to take responsibility for the regained freedom and to continue rolling out vaccines quickly, especially given the accelerating spread of the highly infectious Delta variant of the virus.
KfW-ifo SME Barometer June 2021(PDF, 138 KB, non-accessible)
Start-up activity in Germany dropped in 2020 as a result of the coronavirus crisis. The number of business starters dropped to 537,000, hitting a new low for full-time start-ups. In 2020, entrepreneurs ventured into self-employment more often to seize a business opportunity. The number of opportunity start-ups has thus remained relatively steady. The coronavirus crisis dealt a particularly heavy blow to self-employed women because of the sectors they tend to work in. Still, the number of female business starters fell only marginally. Aspiring female entrepreneurs appear to have adapted to the new crisis conditions faster and ultimately realised their start-up plans more often than men.
KfW Entrepreneurship Monitor 2021(PDF, 669 KB, non-accessible)
The downward trend in the corporate lending market deepened at the beginning of the year. Compared with the previous year, new lending by German banks to businesses and self-employed persons fell by 6.5%. A slump of this magnitude was anticipated partly as a result of the pandemic-related credit surge in spring 2020.
Below-average demand for credit remains the determining fundamental factor for the credit market weakness. In addition to the increasing disbursement of government financial assistance, the economic recovery is a major driver. As companies' burdens from turnover losses decline, the need for new bank loans is falling. One drop of bitterness remains the continuing reluctance of companies to invest.
However, in view of the significant brightening of economic sentiment, improvement is in sight. With the disappearance of the negative base effect and the stronger economy in the autumn, the turnaround should also take place on the credit market.
KfW Credit Market Outlook June 2021(PDF, 120 KB, non-accessible)
Coronavirus crisis is putting pressure on businesses – lending environment is becoming more difficult.
KfW Group has conducted its 20th business survey on bank behaviour and financing in collaboration with 18 business associations.
The most important findings:
- The financing situation of enterprises has worsened. The proportion of enterprises reporting difficulties in accessing credit was 26.5%.
- Around 60% of the surveyed enterprises conducted loan negotiations in 2020. Long-term loans were particularly sought-after.
- The crisis has weighed on enterprises’ financial situation. That has put downward pressure on ratings, with 34.5% of enterprises reporting a lower credit rating.
- Around two thirds of the surveyed enterprises invested in their business in 2020, although less than the year before. However, investment plans for 2021 point to a recovery.
Business Survey 2021 - Lending - Summary(PDF, 87 KB, non-accessible)
The third wave of coronavirus infections has been contained, the vaccination rate is rising and there are prospects for continuing relaxations of lockdown rules in more and more regions. This good news quickly lifted the spirits of small and medium-sized enterprises in May, sending confidence levels back into positive territory for the first time since the start of the pandemic. The rise is bolstered primarily by a much more optimistic outlook on the coming six months. But although it is all systems go for the economy, it is also good advice to be gentle with the accelerator. Lifting regulations too quickly could still put Germany at risk of gambling away the most recent successes in containing the pandemic.
The skills shortage continues to grow strongly in the second quarter. These are the findings of the current KfW-ifo Skilled Labour Barometer. One quarter of all businesses see their operations hampered by skills shortages, more than twice as many as a year ago. Unless further steps are taken, skills shortages can turn into a serious obstacle to growth in the coming years. Germany therefore needs a strategy to secure the supply of skills for the post-coronavirus era. In order to successfully resolve the shortage, more people must participate in the labour force, workers need to upgrade their skills and the labour productivity growth rate must be strengthened by putting in place frameworks that are more conducive to investment, innovation and digitalisation, as well as by reducing deficits in the digital and business-related infrastructure.
KfW-ifo Skilled Labour Barometer June 2021(PDF, 168 KB, non-accessible)
Vaccination progress has clearly picked up pace and the third infection wave has been contained. With the first steps towards a reopening, Germany’s GDP is set to grow again this quarter. Growth will presumably jump noticeably in the summer and GDP will surpass the pre-crisis level in autumn. Germany’s GDP will probably expand by 3.5% in 2021 as a whole. The growth rate for 2022 is predicted to be 4.0%, although this high rate will primarily result from an exceptionally high statistical overhang. Driven by catch-up growth, GDP in the euro area will likely grow by 4.5% in 2021 and 4.3% in 2022. The pandemic continues to pose particular downside risks. However, should the supply bottlenecks in the manufacturing sector be resolved quickly, growth might also turn out higher.
KfW Business Cycle Compass May 2021(PDF, 130 KB, non-accessible)
The positive development of VC business sentiment has continued into the new year. In the first quarter of 2021 the sentiment indicator of the early-stage segment rose by 11.5 points to 27.8 balance points. Only a year after the coronavirus-induced downturn in sentiment, nearly all sentiment indicators for the market environment have turned positive – many closing in on their all-time highs. Assessments of fundraising and exit opportunities improved particularly strongly in the first quarter of 2021. Appetite for new investments has climbed to a new high – no doubt also because of the quality and strength of VC deal flow, the assessments of which have also risen to near all-time high levels.
German Venture Capital Barometer 1st Quarter 2021(PDF, 146 KB, non-accessible)
In the wake of the coronavirus slump the recovery of business sentiment in the German private equity market recently improved only very slowly but it has now gained momentum. The sentiment indicator of the later-stage segment gained 18.7 points in the first quarter of 2021, rising to -12.2 balance points, remaining just barely in red territory. Although the various sentiment indicators for the German private equity market paint a mixed picture, most of them improved at the start of the year. Surging economic optimism appears to be leading to a generally improved assessment of the situation of SMEs, so that assessments of the quality and strength of deal flow are positive again, write-down pressure is falling and private equity investors are exhibiting significantly more appetite for new investments. The drop in satisfaction with entry valuations is therefore almost inevitable.
German Private Equity Barometer 1st Quarter 2021(PDF, 144 KB, non-accessible)
The third coronavirus wave has required tighter lockdowns in many places and there is still a long way to go before broad sections of the population have been immunised. At the same time, the global economy is clearly recovering. In an environment filled with contradictory signals, SMEs are putting up a good fight. Their business sentiment rose for the third consecutive month. Both sentiment components contributed to the increase. In order for the hoped-for upswing to now become a reality, new infections must be consistently contained and vaccinations ramped up further.
KfW-ifo SME Barometer April 2021(PDF, 137 KB, non-accessible)
The share of businesses in credit negotiations continued to decline in the first quarter of 2021. Large companies’ demand has stagnated at the low level of the previous quarter. Reluctance to invest and uncertainty about the further course of the pandemic and an increased debt burden in parts of the corporate sector, as well as government guarantee programmes and subsidies are likely to curb credit demand. Banks are slightly tightening their lending policies again but only for SMEs. Large companies, especially in the manufacturing sector, are once again finding it much easier to access bank loans.
KfW-ifo Credit Constraint Indicator April 2021(PDF, 122 KB, non-accessible)
Towards the end of the year, new lending by German banks to enterprises and self-employed persons fell behind the previous year’s level by a noticeable -4.3%. Thus, unlike in the spring of 2020, the second coronavirus wave failed to trigger a significant increase in credit demand.
The restrictions imposed in autumn put renewed pressure on many businesses, but the second wave of infections has had a less severe macroeconomic impact. Government financial support combined with businesses’ adaptation measures further stabilised the liquidity position in the fourth quarter. Given the enormous uncertainty, investment financing continues to be in low demand.
We also expect a significant year-on-year decline in lending in the first half of the year. This is partly the result of a pronounced base effect created by the pandemic-driven strong lending activity in spring and summer 2020.
KfW Credit Market Outlook March 2021(PDF, 136 KB, non-accessible)
In March, sentiment among small and medium-sized enterprises brightened for the second consecutive month – this time very strongly. With the arrival of spring, business confidence rose three times the typical monthly variation. Expectations in particular spiked, turning slightly positive for the first time since the outbreak of the pandemic. Large enterprises are currently even more upbeat. But the strong improvements in sentiment across the overall economy are only a snapshot amid the surging third wave of infections. Yet they underscore the great potential for a rebound once the pandemic has been successfully suppressed. They can be seen as a vote of confidence in the upturn.
KfW-ifo SME Barometer: March 2021(PDF, 155 KB, non-accessible)
Focus on Economics
Around the world, government debt has grown dramatically in response to the coronavirus crisis. But how sustainable is the debt that has built up? This paper analyses the prospects for reducing government debt ratios using the examples of Germany and Italy. It focuses on longer-term developments from 2023, when both the recession and the immediate recovery phase will presumably have come to an end. On the basis of various scenarios, we demonstrate how crucial the relationship between interest rates and economic growth rates is for meeting the consolidation challenge. In the current environment of extremely low interest rates, Germany’s debt-to-GDP ratio could fall below the Maastricht threshold in the course of this decade already and even Italy could succeed in slowly reducing its debt ratio with only moderate budget surpluses. A structural increase in the interest-growth differential, on the other hand, would pose a great risk to Italy’s debt sustainability.
Debt sustainability after the coronavirus crisis – interest rates and growth are pivotal(PDF, 237 KB, non-accessible)
Focus on Economics
Residential property prices in Germany continued to rise strongly in 2020. Has a Germany-wide price bubble formed that could burst with grave consequences for the German economy? The present analysis can still give the all clear in this respect because housing loans have largely increased in line with incomes, overall economic growth and decreased interest costs. Nevertheless, evidence of speculative bubbles forming in some regions and risks of price drops have grown substantially. This is particularly true given the possibility of a shrinking population.
What is driving housing prices – risky speculation or sound calculation?(PDF, 148 KB, non-accessible)
International trade continues to play an important role for Germany's economic model and, if we look closely at the groups of goods, is relatively well diversified despite the high importance of capital goods. The Corona crisis brought global trade and Germany's trade to its knees and quickly affected the country's important trading partners. To be sure, trade in goods is recovering faster than trade in services. But exports and imports of capital goods fell particularly sharply in the crisis, already weighed down by weak global investment activity before it hit. Investment activity will pick up when the global and German economies recover and economic uncertainty decreases. That will also provide impetus for trade in capital goods. In the longer term, digitalisation and the transition to a climate-neutral economy are important topics for international trade.
The coronavirus and foreign trade – the crisis accentuates long-term trends(PDF, 279 KB, non-accessible)
After January was spent digesting the hard lockdown, February brought a hint of spring. SME business confidence rose again noticeably by 4.2 points to -10.1 balance points. Expectations in particular improved and assessments of the current business situation also improved slightly. But the gap remains wide between the services and retail businesses, which were hit hard by the restrictions, and construction and industrial firms. Sentiment among small and medium-sized manufacturers continued to rise strongly. In retail businesses, on the other hand, it was only the hope for better times that brought a slight improvement in business confidence in February, while their situation assessments were almost as negative as during the first lockdown.
KfW-ifo SME Barometer: February 2021(PDF, 142 KB, non-accessible)
Since joining the EU, the countries of Central and Eastern Europe have seen significant growth in trade and international direct investment. German enterprises in particular have invested heavily in neighbouring Czech Republic and Poland. The increasingly evident skills shortage in the commercial-technical area in these countries, however, might hamper the cooperation. Germany’s partners have now risen to the challenge of reforming the vocational education and training system in a broad modernisation effort to make it more practice-relevant.
More practical vocational training may ease skills shortage in Central-Eastern Europe(PDF, 235 KB, non-accessible)
Continued high infection rates, the risk of more contagious virus mutations and the resulting extended restrictions will cause Germany’s economy to contract sharply in the first quarter of 2021. But with increasing progress in the rollout of vaccines and restrictions being eased first cautiously and then more broadly as the virus is successfully controlled and a third wave is avoided, a noticeable recovery will emerge in the spring and a growth spurt in the summer. Germany’s GDP is forecast to grow by 3.3% in 2021 and 3.4% in 2022. The pre-crisis level will be reached again in the fourth quarter of 2021. Driven by vigorous catch-up growth, GDP in the euro area is set to grow by 4.6% in 2021 and 4.0% in 2022. The euro area as a whole, however, will not return to the pre-crisis level yet in 2021.
KfW Business Cycle Compass February 2021(PDF, 126 KB, non-accessible)
Residential construction investment continued to grow in 2020, despite the coronavirus crisis, and completions are also likely to have increased. The overhang of approved but as yet unbuilt housing units has likely grown to more than 750,000, indicating a further increase in completions for 2021. The number of completed dwellings may potentially exceed 300,000 again for the first time in 20 years. New homes will be built primarily in places where population growth has driven up housing demand. But housing will nonetheless remain scarce and expensive in urban centres as the trend towards urbanisation is continuing. Excess demand in overheated housing markets can be reduced by building new dwellings and by diverting migration flows. Creating jobs outside the centres and expanding public regional transport and digital infrastructure can help divert these flows.
A ray of light: Residential construction investment is up despite coronavirus crisis(PDF, 267 KB, non-accessible)
Sentiment in the VC market improved significantly at the end of 2020, fully offsetting the coronavirus-induced drastic confidence loss of the start of the year. In the final quarter, the business climate indicator of the early-stage segment rose by 26.7 points to 17.0 balance points. Business situation and expectations assessments improved at similar rates. The three business climate indicators thus appear to be unimpressed by the renewed lockdown and even exceed the previous pre-coronavirus level. Evidently, the experience from the spring was that the startup scene is less widely affected by the coronavirus restrictions than initially feared.
German Venture Capital Barometer: 4th Quarter 2020(PDF, 125 KB, non-accessible)
Sentiment in the German private equity market continues to recover at a sluggish pace. At -30.9 balance points, the sentiment indicator of the later-stage segment hardly improved in the fourth quarter of 2020 (+6.1). Thus, it made up for only around half of the downturn from the first quarter because the path of recovery flattened halfway out of the coronavirus slump. The coronavirus crisis thus continues to weigh heavily on sentiment and impacts on assessments of both the current business situation and expectations.
German Private Equity Barometer: 4th Quarter 2020(PDF, 125 KB, non-accessible)
The newly designed KfW-ifo Skilled Labour Barometer describes – in the aggregate and by economic sectors and regions – to what extent businesses see their business activity hampered by skills shortages. In the first quarter of 2021, skills shortages hampered the operations of 20.6% of businesses in Germany. Despite the lockdown, that was 5.6% more than in the third quarter of 2020. In major service businesses such as architecture and engineering firms, law firms, tax consultancies and information technology services, 30 to 50% of businesses are affected. The skills shortage may turn into a serious obstacle to economic growth in the coming years as further cohorts of baby boomers begin to retire and as a result of weak labour productivity growth. From now on, the KfW-ifo Skilled Labour Barometer will be published in the spring and autumn of each year.
KfW-ifo Skilled Labour Barometer January 2021(PDF, 150 KB, non-accessible)
Economics in Brief
Most Germans are not really into continuing their education. This applies to low-skilled workers and those in the low-wage sector in particular. The trend is growing but 60% of the working population did not engage in further vocational education in 2018. Among workers with a low skill level it was 75%. This is of concern because the coronavirus crisis is threatening many jobs and the digital, demographic and ecological structural transformation is requiring workers to be much more adaptable. Further education can also address growing skills shortages. For a culture of lifelong learning it is therefore important to eliminate the deficits in education and professional development.
Coronavirus and structural change threaten jobs – further training more important than ever(PDF, 123 KB, non-accessible)
SME business sentiment: retail in freefall, manufacturing steady
SME business sentiment in Germany fell sharply in January as a result of the extended and tightened lockdown. Situation assessments and business expectations both fell. Factors that likely contributed to pessimism were uncertainty about the end of the lockdown and disappointment in the slow pace of the vaccine rollout. But the overall sentiment level is still nowhere near the record low of last spring.
KfW-ifo SME Barometer January 2021(PDF, 242 KB, non-accessible)
Despite renewed restrictions on business activity, loans did not attract much interest among enterprises in the fourth quarter of 2020, the KfW-ifo Credit Constraint Indicator survey has found.
The share of enterprises that were engaged in loan negotiations with banks plummeted to a new all-time low in both size classes. Due to the high level of uncertainty about the further course of the pandemic, interest in investment financing in particular is likely to be low at present.
At the same time, companies seeking bank financing are encountering increasingly restrictive financial institutions. The KfW-ifo Credit Constraint Indicator for SMEs rose for the sixth consecutive time to now 22.1%.
KfW-ifo Credit Constraint Indicator January 2021(PDF, 142 KB, non-accessible)
In the first half of December, Germany’s SMEs were still relatively unimpressed by rising new infections and the prospects of a tougher lockdown. Their business confidence rose 1.4 points to -10.6 balance points. SMEs’ situation assessments improved noticeably, while their expectations were only slightly higher. The positive outlook for an easing of the situation in the medium term through the rollout of effective vaccines is likely to be neutralised by a dimmer view of the coming months. However, the specific closure of child daycare centres, schools and many stationary retail shops, which went into effect on 16 December until at least 10 January, was not yet specifically known when most of the responses were returned.
KfW-ifo SME Barometer December 2020(PDF, 88 KB, non-accessible)
KfW Research has calculated that new lending to enterprises and self-employed persons lost momentum in the third quarter. Banks extended just 0.3% more corporate loans than in the same period last year. That is in sharp contrast with the strong growth rates in the first half of the year.
The difficult situation of businesses in the coronavirus crisis has weighed heavily on investment activity. Loans to finance capital expenditure are hardly in demand. At the same time, the economic recovery over the summer months and businesses’ adaptations have reduced their need for liquidity. Credit institutions are moderately tightening their lending standards.
The decline in lending momentum can be expected to continue and accelerate. It is therefore all the more important to keep access to credit open for companies that want to invest now in order to be prepared for future challenges and opportunities.
KfW Credit Market Outlook December 2020
The second wave of infections and the partial lockdown leave their mark on small and medium-sized enterprises. SME business confidence fell by 4.5 points in November – a significant decline but only moderate compared to the crashes of 18 and 25 points in March and April. Situation assessments presented themselves as relatively steady, while business expectations plunged. Service enterprises are currently the most pessimistic in both size classes. After all, this segment includes all industries that have been directly affected by the lockdown since the beginning of November. Small and medium-sized enterprises in particular are likely to represent a large share of the critical sectors. Medium-sized retailers, however, also reported a rapid deterioration in business confidence. In the large enterprise segment, the manufacturing sector managed to lift overall sentiment.
KfW-ifo SME Barometer November 2020(PDF, 126 KB, non-accessible)
Focus on Economics
The COVID-19 pandemic has deeply affected and unsettled Germany’s enterprises. To be sure, most enterprises rest on a solid financial foundation. The current situation, however, is making it difficult for businesses to make the necessary investments to tap into growth areas in the transition to a digital and climate-neutral economy. But such investments are very important for them to grow out of debt and secure prosperity in the future. The coronavirus crisis has already thwarted the investment plans of many small and medium-sized enterprises. Companies expect to invest almost EUR 40 billion less than last year. That is why economic policy must also seize the moment to create the framework, provide incentives for investment and lead the way with start-up finance to make future growth possible in these two key areas.
SMEs between financial resilience and a digital and green investment surge – a trade-off that should not be(PDF, 368 KB, non-accessible)
In the summer months Germany and the euro area were able to offset a large part of the previous economic contraction. However, as a result of the renewed sharp rise in the number of new COVID-19 infections since the beginning of autumn and the restrictions that became necessary, the recovery will stop temporarily. A decline in economic output is to be expected for the winter half-year of 2020/2021. Based on the encouraging perspective that effective vaccines will soon be available, KfW Research forecasts that the return to public life and social activities will lead to a surge in growth from next spring. Germany is set to grow by 4.0% in 2021 and the euro area by as much as 5.1%, starting from a lower level.
KfW Business Cycle Compass November 2020(PDF, 120 KB, non-accessible)
The outlook for small and medium-sized enterprises is darkening amid the second wave of infections. In October the containment measures, still mild and mostly local, hardly disrupted business activity but tighter restrictions were foreseeable as new infections were rising fast. The partial lockdown in November will interrupt the economic recovery. However, the response means there is a good chance that the damage can be confined to the particularly contact-intensive sectors. But there is still a long winter ahead and the downside risks are therefore high.
KfW-ifo SME Barometer October 2020(PDF, 127 KB, non-accessible)
VC market sentiment continued to recover from the spring coronavirus shock. In the third quarter of 2020, the sentiment indicator of the early-stage segment climbed by 4.7 points to -9.5 balance points. VC investors rated both their current business situation and their expectations better than in the previous quarter, although situation assessments improved only very marginally. In the third quarter, the development of the market environment was mixed. In the fundraising climate as a key factor, however, the rebound from the second quarter continued, with assessments even back in the green zone. VC investors’ concerns over fundraising from the coronavirus crisis thus appear to have largely disappeared.
German Venture Capital Barometer: 3rd Quarter 2020(PDF, 98 KB, non-accessible)
The recovery of business confidence in the German private equity market from the coronavirus shock has stalled. The sentiment indicator of the later-stage segment stagnated at -37.5 balance points in the third quarter of 2020. Both current business situation assessments and business expectations remained nearly unchanged. The German private equity market environment has ceased to improve since the rebound in the second quarter. On the contrary, many sentiment indicators dropped again in the third quarter. Apart from the assessment of the promotional environment and tax framework, which are in the upper green band, most of the remaining indicators are deep in the red.
German Private Equity Barometer: 3rd Quarter 2020(PDF, 97 KB, non-accessible)
The coronavirus crisis has left a deep imprint on the SME sector. The KfW SME Panel 2020 shows that they continue to be severely impacted and their expectations for 2020 as a whole are at a historic low. The turnovers of small and medium-sized enterprises (SMEs) are set to drop more steeply than in the financial crisis of 2009. As a result, many enterprises fear further considerable pressure on employment. Equity ratios are also under stress. But SMEs broadly rest on a solid foundation, partly because of their renewed good performance in 2019. Employment, turnovers and investment rose again last year. SMEs were able to increase their profitability and build up their financial buffers once again, so they entered the crisis from a very good position. But the pathway out is likely to be long and hard and the impact will be felt for a long time.
The global response to the coronavirus pandemic has plunged Germany into a deep recession. Still, there is good reason to be optimistic. This becomes clear if we compare it with the unification of Germany, which brought the deepest economic slump of the post-war era so far. This discussion paper describes what we now need to do in Germany to succeed in overcoming the crisis and strengthening environmentally sound growth on a sustainable basis. Five fields of action are crucial: 1) making the economy resilient to crises; 2) advancing towards a carbon-neutral economy; 3) translating inventiveness and reduced mistrust in digitalisation into productivity increases; 4) continuing to use the advantages of international integration and avoiding a nationalisation of supply chains; and 5) strengthening Europe.
For crisis-resilient growth and better global collaboration(PDF, 223 KB, non-accessible)
Banks’ reluctance to give loans to small and medium-sized enterprises continues to grow in the coronavirus crisis. But considering the exceptional economic situation, the criteria are still being tightened with moderation.
The KfW ifo Credit Constraint Indicator for SMEs rose slightly in the third quarter. 21.7% of enterprises reported that banks were being restrictive in loan negotiations. As a result, the gap to large enterprises has widened again slightly. In this size class, credit access improved after criteria were significantly tightened in the previous quarter.
SME service providers encounter particularly adverse conditions for accessing loans. More than one in four currently have difficulties in obtaining loans. At the same time, the situation has eased in other sectors of the economy. Credit constraint decreased across both size classes in the construction and manufacturing sectors.
KfW-ifo Credit Constraint Indicator October 2020(PDF, 108 KB, non-accessible)
A second wave of new coronavirus infections is on its way in Europe, taking on alarming proportions in some neighbouring countries and jeopardising the economic recovery. Against this backdrop, the fifth rise in the business climate indicator for German SMEs is sending out reassuring signals. Nevertheless, the resurging pandemic is becoming a growing obstacle for the economy as the cold season begins. It can still be overcome but the difficult part of the recovery has begun.
KfW-ifo SME Barometer September 2020(PDF, 129 KB, non-accessible)
The global spread of COVID-19 and the response to the pandemic have led to a rapid rise in uncertainty. Measuring uncertainty, however, is a challenge. In order to identify as broad an uncertainty measure for Germany as possible, an index is created that captures financial market volatility, politically induced uncertainty based on media reports and the heterogeneity of business expectations. This index shows that uncertainty has increased very strongly during the coronavirus pandemic and economic activity has dropped particularly sharply. From a theoretical perspective, the primary mechanism through which reduced (planning) certainty negatively influences economic decisions is that people postpone their consumption and investment decisions and wait for uncertainty to dissipate.
Uncertainty and economic activity in Germany(PDF, 319 KB, non-accessible)
The economic crisis from the coronavirus shock is unprecedented in the speed of its spread, its depth and global scale. Because of high uncertainty, a lasting recovery is particularly difficult and will depend mainly on meeting three key challenges: First, the business sector can be expected to incur higher debt, which will adversely impact investment activity. High loan losses and low earnings are putting increased pressure on banks’ equity positions, reducing credit supply. Second, the coronavirus pandemic has accelerated the implementation of short-term digitalisation and innovation projects. More long-term, in-depth projects, however, are at risk of being put off for lack of funds. Third, climate change demands structural adjustments in all areas of the economy which must be addressed quickly and decisively regardless of financial constraints.
Where to from here? The crucial next steps in the coronavirus crisis(PDF, 214 KB, non-accessible)
The initially very strong sentiment improvement driven by the relaxation of coronavirus restrictions since May is weakening. In August, however, SME business confidence continued to brighten but much less than in the preceding months, remaining well below the pre-crisis level of February. For the first time in a good two and a half years, large enterprises are slightly more upbeat than SMEs. The easy part of the recovery since the historic slump in eeconomic activity in April is over and bringing it closer to what it was before the crisis this coming autumn and winter will be rather challenging by comparison.
KfW-ifo SME Barometer August 2020(PDF, 119 KB, non-accessible)
The profound shock of the corona crisis has thrown many companies into distress. With their continuously strong lending, Germany's banks and savings banks are making an important contribution to overcoming the economic slump.
According to calculations by KfW Research, the growth of new lending to businesses and self-employed persons in Germany hardly slowed during the second quarter and remained on a high level, increasing by 6.0% year-on-year. The fact that long-term loans in particular were granted is good news for the stability of the economic recovery. Businesses have likely focused on ensuring the survival of their operations, while capital expenditure slipped into the background.
We expect economic momentum to slow in the further course of the year. The ongoing economic recovery is easing the pressure on the liquidity situation, while demand for investment loans should remain weak for some time to come.
KfW Credit Market Outlook: September 2020(PDF, 88 KB, non-accessible)
The coronavirus pandemic has led to an economic slump of historic proportions in Germany and the euro area. The low point, however, was passed back in April. It was followed by a vigorous catch-up movement that translates into very high growth in the present quarter. However, headwinds are gathering strength.
KfW Research stands by its forecast that Germany’s gross domestic product will contract by around 6% this year, before growing again by 5% next year. Gross domestic product in the euro area is set to contract by around 8% overall in 2020. A severe second wave of infections remains the highest risk, although new restriction measures will likely end up being more targeted than in spring.
KfW Business Cycle Compass Germany/Eurozone August 2020(PDF, 111 KB, non-accessible)
SME business sentiment rose for the third consecutive month in July. This shows that small and medium-sized enterprises were quite successful in relaunching their businesses after the containment of the first wave of infections. They started the summer quarter on a robust path of recovery. What is particularly encouraging is that situation assessments also improved. However, headwinds are building. Continuing high global infection rates are hurting export-oriented manufacturing in particular. The recent rise in new infections in Germany also poses a risk to almost all sectors.
KfW-ifo SME Barometer July 2020(PDF, 106 KB, non-accessible)
Economics in Brief
What does the coronavirus crisis mean for Germany’s VC market? How are market participants responding and what are the consequences? In a special survey, 24 VC investors gave their views on specific aspects.
Start-ups are grappling with losses in turnover, which has also increased the risk of failure. At the same time, the crisis is impacting on their financing situation as even deals already committed to have not been closed. The main reason for this appears to be the great uncertainty caused by the coronavirus shock. However, the threat to further deals not materialising because of the coronavirus should have passed by now. Nevertheless, how long investors will now remain focused on their core business will presumably depend on how well businesses and economies get through the crisis.
Coronavirus crisis has unsettled the VC market and changed the investor landscape(PDF, 91 KB, non-accessible)
Focus on Economics
German-Polish economic relations have developed extremely well. Germany’s second-largest neighbour has steadily climbed the rankings of its most important trading partners. Now, however, the coronavirus crisis is calling into question established structures of cooperation, particularly in the border regions. A more intensive dialogue is now required to jointly overcome the current challenges. The restructuring of production chains that is to be expected after the coronavirus crisis could even make German-Polish cooperation grow in importance.
Will economic relations between Germany and Poland thrive post-coronavirus?(PDF, 176 KB, non-accessible)
Businesses are well-equipped for the crisis
In cooperation with 19 trade associations, KfW Group has conducted a business survey on banking behaviour and financing for the 19th time.
The most important results are:
- The financing situation remained good until the outbreak of the coronavirus crisis.
- The proportion of enterprises reporting difficulties in accessing credit was 13.4%.
- As before, however, small businesses are still much more likely to face difficulties in accessing credit.
- The positive development of businesses’ equity ratio and credit rating continued up until the beginning of 2020.
- Bank loans remain an important source of funding for businesses. Internal funding, however, continues to play by far the most important role in business financing.
Business Survey 2020 – Access to finance (Summary)(PDF, 83 KB, accessible)
The German VC market was unsettled by the uncertain consequences of the coronavirus crisis at the end of the first quarter of 2020 but the initial shock has passed for now. Business sentiment clearly recovered from the all-time low. In the second quarter the sentiment indicator of the early-stage sentiment rose by 50.0 to -11.1 balance points, reversing more than half of the coronavirus slump. VC investors’ assessments of both the current business situation and expectations recovered. The various sub-indicators also improved. VC investors are breathing a sigh of relief with respect to fundraising, exit opportunities, new investment and value adjustments, for example.
German Venture Capital Barometer: 2nd Quarter 2020(PDF, 147 KB, non-accessible)
Confidence has returned to the German private equity market after the massive coronavirus slump. In the second quarter of 2020 the sentiment indicator of the later-stage segment reversed more than half of the first-quarter losses, rising by 45.6 to -40.6 balance points. Later-stage investors are again taking a more positive view of the current business situation and have higher expectations as well. Although sentiment has risen from its low, most indicators remain negative despite the rebound. Private equity investors are still disgruntled by the fundraising climate, exit opportunities and write-down pressure.
German Private Equity Barometer: 2nd Quarter 2020(PDF, 147 KB, non-accessible)
Businesses of all size classes are finding it more difficult to access credit in the coronavirus crisis.
The KfW Ifo Credit Constraint Indicator has reached the highest level since the survey methodology was revised in 2017. More than one fifth of SMEs reported that banks were restrictive in loan negotiations in the second quarter of 2020. However, large enterprises also have to surmount growing obstacles when accessing credit.
But in view of the significantly increased loan default risks due to the deep recession, the difficulties in accessing credit are still limited. This contrasts with the global financial crisis of 2009, when more than 40% of the small and medium-sized manufacturing firms surveyed by the ifo Institute perceived banks’ lending policy as restrictive. The situation today is not just due to the greater resilience of the banking sector but also to the comprehensive economic support packages.
KfW-ifo Credit Constraint Indicator July 2020(PDF, 146 KB, non-accessible)
The coronavirus crisis has set a lot of things in motion and opened up opportunities for change. In order to set the course towards more sustainable economic management, five fields of action will be crucial: enhancing the crisis resilience of the economy, accelerating the transition towards carbon neutrality, translating digitalisation and inventiveness into productivity growth, continuing to use the advantages of international integration and strengthening Europe. This KfW Research position paper fills these five fields of action with life and details key starting points for a growth and investment programme for the post-coronavirus crisis phase.
The crisis as a catalyst for more sustainable economic management(PDF, 124 KB, non-accessible)
The low number of new infections in Germany and the resulting easing of restrictions combined with strong economic-policy stimulus measures have led to a rapid surge in SME business sentiment at the beginning of summer. There is good reason for confidence to return, given the extensive stabilisation measures and success in containing the virus. However, risks remain very high as the further course of the pandemic is virtually impossible to predict.
KfW-ifo SME Barometer June 2020(PDF, 116 KB, non-accessible)
Focus on Economics
The dark clouds of the coronavirus crisis are gradually clearing. Nevertheless, most of the small and medium-sized enterprises will feel the impact of the coronavirus crisis for a long time. That was one of the findings of the second representative supplementary survey based on the KfW SME Panel in early June 2020. Most enterprises do not expect to return to full economic activity before the spring of 2021. Around 2.3 million SMEs were affected by losses in turnover in May as well. Companies lost an average of 46% of their normally anticipated turnover. Overall, SMEs lost around EUR 88 billion in May. This is also putting pressure on their liquidity. It is true that the situation appears to have eased for some enterprises, with 25% currently reporting adequate liquidity reserves. But around one in five will run out of liquidity in four weeks at the latest unless the situation improves.
Coronavirus crisis in Germany’s SMEs: Return to full economic activity still far off but gradual opening has eased pressure on liquidity(PDF, 148 KB, non-accessible)
The coronavirus crisis has led to a sharp increase in lending dynamics. According to calculations by KfW Research, new lending to businesses and self-employed persons in Germany grew by 7.3% year-on-year in the first quarter. The growth rate thus nearly doubled on the final quarter of last year.
At the start of the coronavirus outbreak in March, access to short-term loans was a particularly important instrument for closing the abruptly emerging liquidity gaps. Even if the recovery has begun, German companies are still grappling with severe turnover losses in the pandemic. We therefore expect credit growth to continue increasing and reach its peak in the second quarter.
A number of economic policy measures are facilitating access to loans for businesses, making it easier for banks to expand their credit supply even amid rising risk costs. These measures also include the recently adopted economic stimulus programme.
KfW Credit Market Outlook June 2020(PDF, 101 KB, non-accessible)
The coronavirus pandemic has caused unprecedented sentiment volatility in the SME sector. In May, business confidence recovered very sharply from its historic nosedive the month before. But what is remarkable are the relations. The rise in confidence from the previous month was the second strongest since the beginning of the timeseries but it made up for only a good one fifth of the decreases in March and April. The stronger sentiment is being carried solely by a record rise in business expectations, which nevertheless remain very pessimistic.
Focus on Economics
Many small and medium-sized enterprises are responding creatively to the coronavirus crisis, with 43% adapting their product/service offerings, sales method or business model. When combined with businesses that still plan to do this, that percentage even rises to 57%. Companies that were hit particularly hard by the crisis and those that have previously innovated are leading the charge.
SMEs are responding creatively to the coronavirus crisis(PDF, 135 KB, non-accessible)
The uncertain consequences of the coronavirus pandemic have unsettled the German VC market. Business confidence has plummeted to an all-time low. In the first quarter of 2020, the business climate indicator of the early-stage segment nosedived by 72.3 points to -61.3 balance points – an unprecedented decline. VC investors’ assessments of both the current business situation and expectations have deteriorated dramatically.
German Venture Capital Barometer: 1st Quarter 2020(PDF, 131 KB, non-accessible)
The coronavirus pandemic has hit the private equity market hard. The German private equity market has experienced a massive loss of confidence. In the first quarter of 2020, the sentiment indicator of the later-stage segment plunged by 94.3 points to -86.7 balance points. Never before have later-stage investors been more pessimistic about both their current business situation and their expectations. The indicator for the current business situation dropped to -82.2 balance points, while the indicator for business expectations fell to -91.2 of -100 possible balance points. The fund-raising climate has now fallen from a record-high level in the previous quarter to just above its previous lowest level.
German Private Equity Barometer: 1st Quarter 2020(PDF, 129 KB, non-accessible)
Economics in Brief
The short-time allowance secures millions of jobs. This contrasts with the US, where 34 million workers have filed unemployment claims. But if the lockdown lasts too long, many workers on short-time arrangements are likely to become unemployed. It therefore appears to be advisable to relax social distancing rules as much as possible and expedite development of a vaccine or treatment. The public and private sector should join forces to achieve this in a concerted approach – at international level.
How the coronavirus crisis is affecting the German labour market(PDF, 85 KB, non-accessible)
The pandemic has hit Europe like a bolt of lightning. The recession is unprecedented in breadth and depth, with the German economy expected to contract by around 6% in 2020. However, in the absence of a second wave of infections, an initially strong and then faltering recovery should begin as early as the second half of the year, which will be reflected in a catch-up growth rate of 5% in 2021. Output will thus return to its pre-crisis level in autumn of 2021. Aggregate output loss will then be around EUR 300 billion.
In the euro area, the recession will likely be even deeper (2020: -7%; 2021: +6%), since the pandemic has hit the other large countries – France, Italy and Spain – particularly hard and the structural environment is unfavourable as well.
KfW Business Cycle Compass Germany/Eurozone May 2020(PDF, 109 KB, non-accessible)
SME business sentiment continues in freefall, dropping even more sharply in April than in March. The mood is thus even more depressed than eleven years ago, at the height of the financial crisis. Both subindicators stand out with new negative records. Situation assessments have deteriorated more than ever before and business expectations have plunged to a new historic low. We are confident nonetheless that we saw sentiment bottom out in April – thanks to the comprehensive coronavirus containment strategy, the successes achieved in stopping the spread of infections and the now announced or already implemented easing of restrictions.
KfW-ifo SME Barometer April 2020(PDF, 116 KB, non-accessible)
Focus on Economics
As anticipated, the coronavirus crisis has hit the SME sector with force. A current special survey based on the KfW SME Panel shows the magnitude of the impact. In March, more than 2.2 million SMEs suffered losses in turnover as a result of the crisis. On average, they lost slightly more than half the normally anticipated March turnover alone, or around EUR 75 billion. Still, SMEs are very resilient against crises of this nature because they have continuously improved their equity base and built up financial buffers. This is helping them to temporarily absorb losses in the current crisis and reduce pressure on liquidity. If the lockdown drags on, however, SMEs’ losses will increase and half of them will run out of liquidity reserves by the end of May.
SMEs are firmly in the grip of the coronavirus crisis but (still) holding on strong(PDF, 214 KB, non-accessible)
Launched in troubled times but at the right moment:
We are pleased to announce the publication of the first edition of the KfW-ifo Credit Constraint Indicator!
Right now, the new quarterly indicator series by KfW Research is a valuable instrument for monitoring and assessing the supply of credit to SMEs and large-scale enterprises during the crisis. Like the KfW-ifo SME Barometer, it is based on data from the ifo economic surveys.
The evaluation of the first quarter of 2020 shows a good starting position. Credit constraint was low across both size classes. Only 17.2% of SMEs reported difficulties in loan negotiations. That means the impact of the coronavirus on the credit market is yet to be seen.
KfW-ifo Credit Constraint Indicator April 2020(PDF, 107 KB, non-accessible)
The coronavirus crisis has hit the export-oriented German economy in what was already a difficult situation. Growing tensions in international trade relations and a worsening global economy also affected SMEs, whose international turnover grew by a mere 3.1% in 2018 to EUR 595 billion, down from 5.5% in 2017. The KfW ifo Export Expectations of the German SME sector were persistently negative in 2019, before crashing through the floor in March 2020. The approx. 800,000 internationally active SMEs have been hit particularly hard by the consequences of the coronavirus crisis in Europe, where their most important sales and procurement markets are located. Even though the trade conflict between the EU and the US is being overshadowed by the coronavirus crisis, one in three SMEs are worried about a possible escalation.
KfW Internationalisation Report 2020(PDF, 1 MB, non-accessible)
The SME business climate is experiencing an historically unique collapse in light of the corona crisis. This drop of 20 points considerably overshadows the sharpest previous decline during the financial crisis. Unlike in previous recessions, the slump is not primarily being caused by the more cyclical industrial sector. Rather, many parts of the domestic economy have been deliberately shut down. As a result, the business climate of small and medium-sized service providers, as well as that of retailers and wholesalers, is plummeting. But it still fails to capture the full extent of the crisis. During the survey period, while it became apparent that the pandemic would escalate and the resulting restrictions would be intensified, most of them were not yet in force in Germany. The full impact is not likely to be mapped until April.
KfW-ifo SME Barometer March 2020(PDF, 130 KB, non-accessible)
Coronavirus and credit: an important building block to limit the economic fallout
The economy is in the stranglehold of the pandemic. Around the world, drastic restrictions to public life are necessary to protect human life and health. The consequences will be severe because they affect the entire German economy.
The credit market plays an important role in this situation because abrupt turnover losses lead to liquidity shortages in a large number of enterprises. That means German financial institutions have to join forces to get the real economy through the epidemic unharmed. The regulator’s move to loosen equity requirements, the measures of the ECB and expanded promotional programmes from KfW combine to form a convincing package that will bolster the credit market.
KfW Credit Market Outlook Special March 2020(PDF, 69 KB, non-accessible)
The German VC business climate has weakened again but remains good. The business climate indicator of the later stage segment fell by 8.0 points to 10.1 balance points in the fourth quarter of 2019. VC investors rated their current business situation significantly poorer than in the previous quarter, while business expectations remained relatively stable. The indicator for the current business situation decreased to 13.2 balance points (-14.3), while the indicator for business expectations stabilised at 7.0 balance points (-1.7)
German Venture Capital Barometer 4th Quarter 2019(PDF, 145 KB, non-accessible)
The business climate in the German private equity market hardly changed on the preceding quarter. In the fourth quarter of 2019, the business climate index for the later stage segment remained unchanged at 6.3 balance points. Later stage investors gave their current business situation and expectations nearly the same rating as before. The indicator for the current business situation was 11.1 balance points (-1.9), while the indicator for business expectations was 1.5 balance points (+1.9). On average for the year 2019, the business climate in the private equity market was on the upper edge of the normal range and thus remained well behind the two very good previous years.
German Private Equity Barometer 4th Quarter 2019(PDF, 146 KB, non-accessible)
In February, small and medium-sized enterprises in Germany did not appear to be concerned about the coronavirus outbreak, which was still concentrated in China at the time. According to the current KfW-ifo SME Barometer, SME business sentiment rose again moderately after falling in the previous month. The driver behind the improved sentiment was a rise in expectations. On the other hand, a coronavirus effect already began to appear among large enterprises, whose business confidence suffered a setback for the first time since October 2020.
KfW-ifo SME Barometer February 2020(PDF, 120 KB, non-accessible)
The German economy lost pace in the final quarter of 2019 and will probably sit just slightly above stagnation level in the first half of 2020 as well. The outbreak of the novel coronavirus is extending what has already been a record long industrial recession into the year 2020. We predict GDP growth of 0.8% in 2020, which is 0.1 percentage points lower than previously forecast. In its initial forecast for 2021, KfW Research expects growth to accelerate to 1.3%. Downward risks predominate.
KfW Business Cycle Compass Germany February 2020(PDF, 96 KB, non-accessible)
The year 2020 began with a setback for small and medium-sized enterprises. Their business climate dropped to the lowest level since August of last year. The decline in sentiment is exclusively due to the renewed drop in expectations. Large enterprises, however, showed clear signs of life. The positive trend among large enterprises reflects easing tensions in the foreign trade environment, while the hitherto reliable domestic economy lost a bit of steam. The coronavirus outbreak currently poses a new burden. All in all, economic momentum remains subdued for the time being.
KfW-ifo SME Barometer January 2020(PDF, 130 KB, non-accessible)
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