Going into autumn, SME sentiment is generally robust

• Manufacturing is down slightly while mood continues to rise in sectors with a domestic focus
• Employment expectations reflect confidence
• The automobile industry is the new unknown in the forecast equation

According to the current KfW-ifo SME Barometer, the SME sector presented itself in a generally robust condition at the beginning of autumn. Although the business climate among small and medium-sized enterprises fell by 0.5 points in September, sentiment remains on a very high level, at 17.3 balance points. The situation among large enterprises is similar, with the business climate falling moderately by 0.8 points to a still positive level of 13.5 balance points.

The cause of the recent downturn in the SME business climate is the drop in sentiment among small and medium-sized manufacturers (-1.8 to 12.8 balance points). A very large proportion of these companies are export-driven and feel the growth weakness in the emerging economies. In contrast, all the sectors with a strong focus on the domestic economy were again more confident in September than in the previous month. SME retailers are at 30.0 balance points, well on track to match the historic peak values reached during the unification boom 25 years ago.

The fundamental confidence of SMEs is reflected in their employment expectations, since only those who believe their business is strong plan to hire new workers. In September the employment expectations of small and medium-sized companies remained on the 16-month high reached in August (-0.1 to 9 balance points). Large enterprises are increasing their hiring plans significantly (+1.3 to 8.7 balance points).

‘German industry is looking to autumn with confidence, sentiment remains on a high level. The KfW-ifo SME Barometer provides plenty of good news in detail that puts the slight dip in the business climate during September into perspective’, said Dr Jörg Zeuner, Chief Economist of KfW Group. The job market and domestic economy are running well, and although export industries are feeling the weakness in the emerging markets, important markets such as the euro area and the USA are recovering. The production and sales figures of the automobile industry in the months ahead will show whether the VW emissions manipulations will affect the economy as a whole. ‘The automobile industry is of great importance to the overall economy. Cars make up just under one fifth of Germany’s goods exports, the automobile industry accounts for a direct share of 4% of economic gross value added and employs 841,000 persons or around 2% of the entire German workforce directly. Moreover, it is closely linked to other sectors of the economy. For the time being, we maintain our economic forecast: real growth of 1.8% for 2015 and around 2% for 2016.

The latest KfW-ifo SME Barometer is available at

www.kfw.de/mittelstandsbarometer