KfW-ifo SME Barometer

• SME business sentiment drops slightly
• Sectors are split: industrial firms are uneasy, construction and retail are confident
• German economic outlook for 2017 remains good

In November German businesses were only moderately impressed by the election of Donald Trump as the 45th president of the USA. Concern over national isolationism and more protectionism weighed on sentiment among exporters, but Germany’s upswing does not appear to be under threat for the time being. After two very strong increases in the preceding months, sentiment among German SMEs dropped by a comparatively moderate 1.7 points to 18.8 balance points. Small and medium-sized enterprises’ business expectations fell by 2.7 points to 11.2 balance points, which is still the second highest level since March 2014. With a negligible 0.5-point drop in the situation indicator to 26.3 balance points, companies remained very satisfied with their current business.

The change in sentiment among large enterprises presented a similar picture in November. Their business climate fell by 1.2 points to 17.5 balance points. Business expectations were down 2.6 points to 9.8 balance points. Although large enterprises rated their current business slightly better, adding 0.5 points to reach 25.1 balance points, this change is so small it is practically insignificant – just as it is among SMEs.

A breakdown of the business climate by sector reveals that industrial enterprises are particularly sensitive to the outcome of the US election and the trade policy changes proposed by the President-Elect. Germany’s export-driven industry relies on open borders more than any other sector. Among SMEs, however, manufacturing is the only sector where sentiment has developed negatively; its business climate shed 1.8 points in November and fell to 14.0 balance points. Among large enterprises, by contrast, business confidence declined both in manufacturing (-2.5 points to 15.9 balance points) and in wholesale (-1.9 points to 21.6 balance points). “In the wholesale sector, large firms in particular operate very intensively where national and international markets come together and, along with manufacturers, would therefore be most affected by increased protectionism and national isolationism”, said Dr Jörg Zeuner, Chief Economist of KfW Group.

By contrast, the mood remains excellent in both size classes of construction and retail, sectors that have a domestic focus. Sentiment among retail SMEs is stable at 23.7 balance points while it improved slightly by 0.3 points to 32.8 balance points among construction SMEs. Large enterprises reported a significant rise in business confidence in both retail (+6.1 points to 14.6 balance points) and construction (+6.2 points to 37.6). Confidence in the construction sector has thus reached new all-time highs in both size classes.

“Despite the somewhat more subdued business climate, we stick to our positive economic forecast for 2017. It is supported not just by the consistently good mood in the domestic economy. Consumption and residential construction will remain the most important growth drivers of the German economy well into next year. But sentiment in the industrial sector remains on a good level as well, despite some concern caused by the outcome of the US presidential election”, said Dr Jörg Zeuner. “For 2017, which has significantly fewer working days, I expect economic growth of 1.3%. The upswing that began in 2014 will thus continue with only slightly reduced underlying momentum.”

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