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Press Release from 2020-09-07 / Group, KfW Research

KfW-ifo SME Barometer: improvement in sentiment among SMEs is losing steam

  • SME business sentiment rises at a slower pace in August
  • Sentiment among large enterprises nearly back to pre-crisis levels
  • Sustaining the economic recovery this autumn and winter will become more difficult

Sentiment among small and mid-sized companies in Germany, which was seeing a strong recovery, is now weakening: in August, SME sentiment did improve for the fourth time in a row but, with a rise of 2.8 points to its present level of -9.7 balance points, the improvement was much less marked than in the preceding months. Business expectations are still only improving very gradually (+1.2 points to -5.0 balance points). Situation assessments, on the other hand, are improving more substantially and have risen by 4.4 points to -14.9 balance points.

There has been a rise in confidence among large enterprises in August as well: their business sentiment climbs by a strong 8.4 points and, at -8.5 balance points, it is nearly back to pre-crisis levels. However, this is only due to large companies' optimism about an improvement in future trade (+5.2 points to 12.5 balance points). Despite a surge in August, the current business situation for large enterprises remains profoundly negative (+11.2 points to -29.3 balance points).

Looking at individual sectors, in August we see that retail is driving the upward trend in sentiment in the German economy. Retailers are not only benefiting from the temporary VAT reduction starting at the mid-year point; other measures to stabilise individual purchasing power and thus consumption, such as short-time working allowance, are having a positive impact. Among the major retailers, including car dealers, business sentiment improved by an earth-shattering 18.8 points to 9.5 balance points. SME retailers more or less maintained their level of sentiment, which has been positive since July (-0.5 points to 8.0 balance points). At the lower end of the business climate table, we continue to see economic sectors that are particularly engaged in international business, namely manufacturing and wholesale.

“After business sentiment shot up when the coronavirus restrictions were relaxed from May onwards, initially in record-breaking leaps, we are now seeing a clear reduction in the pace at which sentiment is improving”, comments Dr Fritzi Köhler-Geib, KfW’s Chief Economist, on the current findings of the KfW- ifo SME Barometer. “The easy part of the recovery is over. Continuing the trend towards pre-crisis levels of economic activity as autumn and winter approach is going to be tougher.” Export-oriented industry, in particular, will need to adjust to the growing demand-side headwinds. “As rates of coronavirus infection continue to increase rapidly around the world, uncertainty remains extremely high and it is putting a brake on companies’ domestic and international investment activity. Germany’s export industry, which specialises in high-quality capital goods, is feeling the impact of this particularly heavily.”

Furthermore, we are likely to see unemployment in Europe continue to grow in the short-term, which will in turn affect consumption and, in particular, sales of durable goods such as cars, for example. In Germany too, it is anything but certain that all those affected by short-time work will in fact be able to return to their original places of work. “For a seamless recovery, it is therefore important that as many people as possible use this phase of short-time work for professional development and, for instance, to improve their digital skills,” says Köhler-Geib. Overall, KfW Research anticipates – even with recovery setting in from the third quarter – that Germany’s gross domestic product will contract by around 6% in 2020 overall, followed by 5% growth next year. We are unlikely to return to the pre-crisis levels seen in the fourth quarter of 2019 until late 2021. And the fact remains: a severe second wave of infections remains the greatest risk to the economy.

The current KfW-ifo SME Barometer is available for download at www.kfw.de/KfW-Group/Service/Download-Center/Research-(EN)/KfW-ifo-SME-Barometer-(EN)


Portrait Christine Volk


Christine Volk


+49 69 74 31 38 67


+49 69 74 31 32 66