KfW-ifo SME Barometer: business climate down slightly after record year

• SMEs look back on an outstanding year
• Little variation in large enterprises’ high confidence level
• Higher price expectations signal normalisation of inflation rate

After shattering one record after another throughout 2017, small and medium-sized enterprises’ confidence dipped slightly towards the end of the year. The key indicator of the KfW-ifo SME Barometer dropped by 0.7 points in December to now 30.6 balance points. This was due to minor decreases in situation assessments (down 0.4 points to 43.9 balance points) and expectations. SMEs’ expectations remain very optimistic despite the minor decline by one point to 17.6 balance points.

The business situation of large enterprises is the best it has been since surveys were first conducted for unified Germany in January 1991 (+3.0 points to 46.4 balance points). Business expectations for the coming six months dropped slightly (-3.0 points to 16.5 balance points), but that is not surprising given what is currently a very good business cycle. Overall, the business climate in the large enterprise sector remains extremely good (down 0.1 points to 31.2 balance points).

Towards the end of the year, only little has changed across individual sectors. Confidence rose above average levels in large construction firms (+3.9 points to 45.8 balance points). Over the year 2017, manufacturing saw a particularly steep rise in confidence compared with December 2016 (industrial SMEs: +16.3 points; large-scale industry: +13.9 points).

SMEs’ sales price expectations increased noticeably in December (+2.7 points), confirming the upward trend seen in the course of the year (+10.9 points). The current level of 15.6 balance points signals that a much higher number of enterprises expect an increase than a decrease in sales prices in the period ahead – a reflection of the strong demand from consumers.

“The mood in the German economy is on an uninterrupted upward trend, the cyclical outlook for the new year is good”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “For 2018 we expect continuing high real growth of 2.5%. For all the optimism in the business sector, however, we must also keep an eye on the downward risks. These include US foreign and trade policy and the situation in China, where private-sector debt has seen huge increases. We expect the Trump administration’s tax cuts to have hardly any effect on demand. They will primarily benefit enterprises and wealthy households, which are likely to save most of their additionally disposable income instead of spending it”, said Zeuner.

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