KfW-ifo SME Barometer: SMEs approaching autumn with high level of confidence

• Business sentiment at two-and-a-half-year high in September
• Situation assessments and expectations improved significantly
• Rise in sentiment even more pronounced among large enterprises than among SMEs

Germany's SMEs are rapidly and convincingly leaving August's slump in sentiment behind them. According to the KfW-ifo SME Barometer, their business sentiment rose by a substantial 4.2 points to hit a two-and-a-half-year high of 18.1 points in September. Both a more favourable assessment of current business (+4.6 to 26.1 balance points) and a more optimistic view of the future (+3.7 to 9.9 balance points) are contributing to the good mood among SMEs at the start of autumn.

The significant resurgence in confidence underscores the fact that SMEs, most of which have a strong focus on the domestic market, expect domestic demand to remain lively. But the rosier expectations are also likely to be due to the fact that the dampening effects of the Brexit vote will only become apparent in the medium to long term, and not immediately as had originally been feared. Large German enterprises that are more integrated into the international division of labour and are therefore particularly sensitive to changes in the external trade environment have recovered from the shock of the Brexit referendum three months later. They not only take a much more positive view of their current business in September (+8.1 points to 22.4 balance points), but have also substantially raised their expectations for the future (+7.8 points to 8.4 balance points). All in all, large enterprises’ confidence rose even more strongly, by 7.9 points to 15.5 balance points, than among SMEs.

“The dark clouds are gone, providing a clear view of the good economic situation,” said Dr Jörg Zeuner, Chief Economist at KfW Group. “Germany remains on a stable path of economic growth. I expect the economy to grow by 1.8% in 2016, but I am also not ruling out a positive surprise following the unusually broad and strong recovery in sentiment in September”. However, the familiar risks on the downside, particularly with respect to international trade, remain. “In addition to the negative economic effects of Brexit, which have only been delayed but not avoided, there is still significant political uncertainty for example relating to the presidential elections in the US and Austria, potential elections in Spain and the constitutional referendum in Italy,” Dr Zeuner said.

The current KfW-ifo SME Barometer can be viewed at

www.kfw.de/mittelstandsbarometer