SME business climate steadies, fears of downturn fade

• Improvements to both business assessments and expectations of SMEs
• Large-scale enterprises less pessimistic than in previous month
• Upswing continues, despite ongoing risks

After three months of worsening sentiment, German SMEs became somewhat more confident again in March. The business climate for small and medium-sized enterprises in the KfW-ifo SME Barometer rose in March for the first time since November 2015, up 1.8 points to 12.7 balance points. This offset nearly half of the previous month's decline.

Assessments of the current business situation were up 2.0 points on February to 25.0 balance points. This means they remain at the high level reached around the middle of last year thanks chiefly to the stable upward trend in the domestic economy; this trend has since been maintained with low volatility. After fears of a global downturn impacted the mood in previous months and weakened the outlook, confidence among SMEs has returned, at least in part: expectations of businesses rose by 1.7 points to 0.6 balance points. Consequently, they are just over the long-term average again, but remain very much below the reading from the final quarter of 2015. This shows that the uncertainty from recent months has yet to dissipate completely.

What is pleasing is that the improvement in March was not limited to individual segments of the economy; it was seen in almost every sector and for every size of company. The gains in manufacturing and wholesale, i.e. in sectors that cultivate the closest links with the global economy, are the biggest.

As with SMEs, the business climate for large-scale enterprises is improving as well, rising 3.4 points to 6.9 balance points. In spite of the relatively strong improvement, sentiment still remains far behind the level recorded for small and medium-sized enterprises. Situation assessments by large enterprises are up by 2.0 points, now sitting at 18.5 balance points. Business expectations rose robustly by 4.6 points, but fell well short of compensating for the setbacks in the previous two months. At 4.6 balance points, the business expectations of large-scale enterprises are languishing in negative territory for the third time in a row.

"Just as spring begins, SMEs take a breather. After two increasingly worrisome months, the fears of a downturn have faded again. The upswing in Germany is likely to continue, mainly thanks to the vibrant domestic economy. Even if toxic risks remain, such as unexpected turbulence in the restructuring of the Chinese economy or fears about the EU drifting apart, I am still confident that the German economy will undergo sound growth of 1.7% in 2016", said Dr. Jörg Zeuner, Chief Economist at KfW.

The current KfW-ifo SME Barometer can be viewed at

www.kfw.de/mittelstandsbarometer