KfW-ifo SME Barometer: SMEs breathe a cautious sigh of relief after war shock in March

• SME business confidence recovers slightly
• But confidence remains low in large enterprises
• Economic outlook marred by many uncertainties

SME business sentiment improved again slightly in April after collapsing in March as a result of Russia’s attack on Ukraine. Still, the rise of 1.8 points to -7.7 balance points makes up for just barely one eighth of the March decline, as illustrated by the current KfW-ifo SME Barometer. Situation assessments and expectations are both slightly better. Assessments of the current business situation rose by 1.3 points to 7.3 balance points, thus remaining well above the long-term average. At the same time, expectations improved slightly more, rising by 2.4 points to -21.0 balance points.

Wholesale SMEs in particular reported a rise in sentiment (+4.5 points to -4.8 balance points), followed closely by service providers (+4.4 points to -5.9 balance points) and, at a slight distance, retailers (+3.5 points to -3.5 balance points). Irrespective of the improvement on the previous month, however, sentiment remains below average in all three segments. The hope for a vigorous upturn in consumption has now dissipated because of the rapid acceleration in inflation and the resulting loss of purchasing power.

The business climate among large enterprises is much more negative than among SMEs. Sentiment remained profoundly negative in April (+0.1 points to -15.7 balance points). While the very pessimistic expectations of large enterprises hardly improved (+1.7 points to -29.9 balance points), their assessments of the current business situation fell even further – unlike among SMEs (-1.9 points to 0.8 balance points).

“After the acute shock of the war in March, business sentiment stabilised in April. But businesses are breathing only a cautious sigh of relief after the collapse in the previous month”, commented Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Current events such as the war which continues to rage unabated and new disruptions to global supply chains caused by strict lockdowns in China are making economic forecasts extremely unreliable right now. Containing Russia’s aggression, effectively mitigating the social burdens from inflation and sanctions, improving energy efficiency, rapidly diversifying energy supply and preparing early and systematically for a possible new coronavirus wave in autumn are key building blocks for stabilising the economy and growth. ”

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