German SMEs well-equipped for uncertain times following Brexit vote

• Business expectations jumped to annual high before Brexit referendum
• Situation assessments steady on a high level
• Majority of large enterprises are optimistic for the first time this year
• Brexit vote ended hopes for faster economic upswing, however

The SME business climate in Germany reached a new annual high in June, gaining 0.9 points to reach 16.3 balance points. For the fourth time in a row it was mainly driven by enterprises’ confidence that business will continue to improve over the coming half-year. Business expectations increased by 1.8 points to 5.7 balance points.

Dr Jörg Zeuner, Chief Economist of KfW Group, commented: “The survey we conducted just before the Brexit referendum signals what would have been possible if Britain had voted in favour of the EU. Now the coming months will be marked by great uncertainty and weaker economic performance – especially in the UK, but also in the rest of Europe. Significantly lower business expectations should reflect this already in July.”

In June, SMEs’ assessments of the current business situation remained steady on the two-year high of 27.0 balance points. In retrospect, this indicates that the economy was on a fundamental upward trend in the spring.

The trend in sentiment among large enterprises is almost identical. Their situation assessments remained virtually unchanged, slipping only 0.1 points to 18.3 balance points, while their expectations brightened even more strongly than those of SMEs, climbing by 4.4 points from a lower level to 2.4 balance point. That puts optimists among the large enterprises slightly in the majority again for the first time this year. All in all, the business climate among large enterprises improved by 2.2 points to 10.4 balance points.

“At any rate, today the good data of June still demonstrate one thing: German enterprises are well-equipped for the uncertain times that lie ahead”, Zeuner summarised the latest KfW-ifo SME Barometer. The Brexit vote will slow down German exports in particular, but also businesses’ willingness to invest. By contrast, Germany’s labour market and domestic demand will remain on a reliable upward trend and thus soften the external headwind. Zeuner now expects the German economy to grow only 1.5% in 2016 and 1.2% in 2017 instead of the previously forecast 1.7% and 1.8%. “That is not a disaster for Germany. It is nevertheless regrettable because the acceleration of growth that has now unfortunately been cancelled would finally have been able to deliver the much-needed investment boost”, said Zeuner.

The latest KfW-ifo SME Barometer can be downloaded from www.kfw.de/mittelstandsbarometer.