KfW-ifo SME Barometer

• SME business sentiment up thanks to improved expectations
• Sentiment among large enterprises reaches annual high
• Expanding recruitment plans underscore the growing optimism among businesses

German SMEs are looking to the coming year with increasing optimism. The latest KfW-ifo SME Barometer shows small and medium-sized enterprises’ business expectations improved by 1.8 points to 10.9 balance points, again confirming the upward trend that has now persisted for a good year.

At 25.9 balance points, assessments of the current business situation remain at the same good level as in the previous month. The last time businesses rated their situation better than now was one and a half years ago. Overall, November saw the business climate in the SME sector climb to 18.5 balance points (up 0.9 points on the preceding month). “As the year draws to a close, sentiment among SMEs was better in November than in any of the previous months of this year,” stresses Dr Jörg Zeuner, KfW Group's Chief Economist.

Like their smaller counterparts, large enterprises also recorded a new annual high in sentiment in November (up 0.8 points to 14.8 balance points). While large enterprises’ assessments of their current business situation improved by 1.1 points to 22.6 balance points, their expectations rose 0.5 points to 6.7 balance points.

Large-scale manufacturing, which is so important for the economy, has particularly returned to the positive mood of last spring (+2.7 points to 13.4 balance points). “Given the great importance of international business for large industrial firms, we see this as confirmation of our view that the recovery in the euro area will continue at a slightly faster pace next year and the recently weak performance of emerging economies will gradually strengthen,” Dr Zeuner adds.

Job growth on the labour market is still the main driver of the domestic economy. Large enterprises in particular have made strong upward revisions to their hiring intentions, namely by 3.0 points – which is 1.7 times the usual monthly variation – to now 9.7 balance points, thus offsetting the relatively weak phase of the preceding three months almost completely in one swipe. Although employment expectations in SMEs, by contrast, have increased only minimally by 0.1 points to 10.7 balance points, they were raised almost continuously in the past twelve months already. “The expanding recruitment plans in both enterprise size classes underscore the growing optimism among businesses. After all, only those who believe in the recovery expand their capacities and hire new staff,” explains Dr Zeuner. All in all, the KfW-ifo SME Barometer portrays a positive view of the German economy, thereby corroborating the optimistic forecast made by KfW Research for 2016: 2.0% real growth in the coming year and an inflation rate that will, at the end of 2016, again come close to the 2% target set by the ECB.

The current KfW-ifo SME Barometer for November 2015 can be found at: www.kfw.de/mittelstandsbarometer.