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Press Release from 2022-11-08 / Group, Group, KfW Research

KfW-ifo SME Barometer: Have business expectations bottomed out?

  • SME business sentiment moved virtually sideways in October
  • Extremely pessimistic expectations have brightened somewhat, situation assessments remain on a downward trend
  • Sharp drop in sentiment among construction SMEs

After literally plummeting in the preceding months, SME business sentiment lost only 0.1 points in October, according to the KfW-ifo SME Barometer. It is therefore moving virtually sideways on a very low level of -23.8 balance points in what remains a difficult environment shaped by material shortages, an inflationary surge and the war in Ukraine.

The partial stabilisation is due to the somewhat less pessimistic business expectations. Starting from a near record-low level, business expectations for the next six months rose by 1.7 points to -42.0 balance points in October. The Federal Government’s fiscal support package and the decreased likelihood of a gas shortage are both likely to have stabilised expectations. By contrast, assessments of the current business situation are falling nearly unabated and are now below the long-term average, having dropped by 0.0 points to -2.4 balance points.

The current energy and inflation crisis has led to significant real wage losses, and consumer confidence in Germany is deep in the doldrums. As a result, business sentiment among SME retailers is also dropping to new record lows. But at least the nosedive slowed in October, when the decline was only 0.3 points to -37.5 balance points. Among service providers, the only segment of SMEs to record a small sentiment improvement (+0.3 point), the mood is not quite as dire thanks to slightly brighter expectations. The construction sector recorded the strongest decline in business sentiment in October (-3.4 points to -19.1 balance points). This particularly interest rate-sensitive sector is likely to feel the ECB’s rapid interest rate turnaround most of all, even if ongoing and firmly planned construction projects will probably prevent a hard fall.

Unlike in SMEs, sentiment among large enterprises continued to plummet almost unabated, dropping by 2.9 points to -28.8 balance points. What is particularly striking is that despite the slightly improved conditions such as the fiscal support package, expectations failed to brighten in this segment.

“At the end of October the Federal Statistical Office surprised with the announcement of positive third quarter GDP growth which, as the icing on the cake, was actually driven by household consumption despite the depressed mood among consumers and retailers”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Excess savings and pent-up demand from the lockdown periods are still likely to play a role here, and purchasing power losses resulting from the energy crisis can also be offset by a declining savings rate. These effects are set to stabilise consumption in the winter half-year as well, although it will probably drop nonetheless. Furthermore, the ECB’s rapid interest rate turnaround, the continuing very pessimistic business expectations and banks’ increasingly restrictive lending policies – particularly towards small and medium-sized enterprises – are creating strong headwinds for investment. If that were to cause the cancellation of, in particular, investments needed to achieve a future-proof and net-zero economy, the damage would be great”, added Köhler-Geib.

The current KfW-ifo SME Barometer can be downloaded from