KfW-ifo SME Barometer: On a plateau after a fast climb

• SME confidence slightly lower in August
• Large enterprises a bit more optimistic
• Construction continues to chase records
• Germany’s upswing is robust and vigorous

The steep rise of German SMEs’ business confidence has reached a plateau for the time being. The key confidence indicator of the KfW-ifo SME Barometer fell slightly by 0.6 points in August to now 28.3 balance points. Both components of the business sentiment indicator dipped slightly. Assessments of the current business situation fell by 0.5 points from the previous record level. But enterprises are still extremely confident about their current business, with the level now at 41.1 balance points. That indicates continuing robust cyclical momentum as summer draws to a close. SMEs’ business expectations are down 0.8 points and now stand at 15.7 balance points. This is still extraordi¬narily high, as optimism has reached a level unseen since early 2011 – with the exception of the previous month. Small and medium-sized enterprises evidently expect the vigorous business cycle to continue for the foreseeable future.

Large enterprises are also upbeat about the future; their business expectations rose by 0.3 points to 12.1 balance points. The increasingly broad international base of the upswing and the reliable strong domestic demand are good motives for such optimism. Despite the improved expectations component, however, overall business sentiment fell by -1.4 points to 25.3 balance points because large enterprises revised a portion of the previous increase to the all-time high of July (-3.4 points to 38.9 balance points).

‘The German economy is steaming ahead and the minor downturn in confidence levels among SMEs and large enterprises in August does nothing to change that’, said Dr Jörg Zeuner, Chief Economist of KfW Group. ‘If we consider the confidence crisis in the automobile industry, the most recent euro appreciation, the continuing geopolitical tensions with North Korea and the stalled Brexit negotiations, there might indeed be some good reasons for enterprises to make significantly more cautious assessments. So the fact that business confidence nevertheless remains on levels approaching historic highs is a sign of self-confidence and strength. I expect the external environment in Europe and around the world to continue brightening and domestic demand in Germany to remain steady, buoyant, and able to rely on sustained employment growth, rising real wages and, at last, stronger growth of corporate investment. On that basis, Germany is aiming for real growth of 2.0% for both 2017 and 2018.’

Almost all business sectors exhibited very good business confidence levels in August, from 21.6 balance points among SME retailers through 27.3 balance points in manufacturing to an unprecedented 48.3 balance points among large construction firms. The result for large construction companies is a new all-time high, not just in the history of the sector, but the highest level ever achieved by any industry or size class since the KfW-ifo SME Barometer was first measured in January 1991. The labour market also remains strong. Businesses’ hiring plans have taken an increasingly expansionary course since early 2016 without any visible signs of weakening.

The current KfW-ifo SME Barometer can be downloaded from:
KfW-ifo SME Barometer