KfW-ifo SME Barometer: Small and medium-sized enterprises started the year 2018 on a high note

• SME business sentiment at near record levels in January
• Situation assessments reached new all-time high, expectations dimmed
• Large enterprises are less confident

German SMEs started the year 2018 with enthusiasm. The business climate of small and medium-sized enterprises rose 0.3 points to 30.9 balance points in January. That is very close to its record level of last November (31.2 balance points). The current rise in confidence is solely due to businesses’ situation assessments. At the start of the year, SMEs were more positive about their situation than ever since surveys were first conducted for unified Germany in 1991 (+2.4 points to 46.3 balance points). Their expectations of future business, on the other hand, dipped slightly (down 1.5 points to 16.0 balance points). Nevertheless, a clear majority of enterprises still expect business to continue improving at least until summer.

SMEs started the year with slightly more confidence than large enterprises. Their business climate dipped by 1.7 points, but remained very good despite the decline to now 29.1 balance points. While large enterprises were nearly as positive about their current business at the start of the year as they were at the end of last year (-0.2 points to 46.1 balance points), they revised their expectations downward by a more significant 3.0 points to 12.9 balance points. Apart from the lower sentiment among large retailers towards the end of the Christmas season, it was mainly business areas with strong global links – wholesale and manufacturing – that were responsible for the somewhat less bullish confidence levels among large enterprises. It is therefore safe to assume that exporters are particularly sceptical about the most recent appreciation trends of the euro, since a stronger euro reduces their pricing flexibility in foreign currency. This is consistent with the relatively strong decrease in sales price expectations in January.

“German SMEs got off to an excellent start to the year 2018”, said Dr Jörg Zeuner, Chief Economist of KfW. “The cyclical momentum will remain strong not just throughout the winter, but the outlook for the further course of the year is also very good overall. Real growth should be about as strong in 2018 as it was last year. For the next government, the tailwind could hardly be better to put Germany and – together with France and the other European partners – the EU on a stable foundation in the long term.”

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