KfW-ifo SME Barometer: SME sentiment in April was a mix of sunshine and rain

• SME business climate has improved for the sixth consecutive month
• Business expectations improved while situation assessments deteriorated
• Expectations for the 2023 business cycle should be kept low

The KfW-ifo SME Barometer for April brings good news overall, but also some bad news. On balance, business confidence among small and medium-sized enterprises rose by a moderate 0.8 points on March to now -2.5 balance points. That is the sixth consecutive increase, after the mood last autumn literally collapsed under the acute fear of an energy crisis. But the increase was driven solely by business expectations: They rose noticeably by 3.4 points to now -6.8 balance points but remained in negative territory. Situation assessments, on the other hand, fell by 2.1 points in March to now 1.9 balance points. They are again approaching the zero line, which stands for the long-term average. That is an indication of continuing economic pressures, for example from the restrictive monetary policy course and inflation-induced purchasing power losses.

Unlike in the two preceding months, sentiment in the economic sectors in which SMEs operate drifted apart again in April. Retail experienced the strongest increase, with sentiment improving by 4.1 points to 7.1 balance points. That put SME retailers on the top of the sentiment leaderboard, which suggests that household consumption is stabilising after the steep purchasing power losses and resulting consumption weakness since last autumn. Sentiment is brightening again in manufacturing as well (+1.6 points to -3.8 balance points). SME service providers, wholesalers and construction firms, on the other hand, reported a lower sentiment level than in March.

Unlike in the SME sector, sentiment among large enterprises was worse in April, albeit only slightly. Their business confidence fell 1.0 points to -9.4 balance points. The renewed improvement in business expectations (+1.7 points to -10.3 balance points) was too weak to fully offset the sharp downward revision of business situation assessments (-4.2 points to -9.0 balance points). What is striking is that large enterprises continue to struggle much more, especially with their current situation, than SMEs, where the level of situation assessments has even been slightly better than the long-term average for the past three months now.

“Just like the weather in April, the indicators of the current KfW-ifo SME Barometer offer not just sunshine but quite a bit of rain, too”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Overall, sentiment continues to improve and is raising the hope for an economic rebound in the course of 2023. Particularly the renewed deterioration in business situation assessments and the well below-average level of the situation indicator, especially among large enterprises, however, illustrate the fact that significant obstacles still stand in the way of a broad recovery. In the winter half-year Germany just barely avoided a technical recession. Whether a contraction can now at least be avoided for 2023 as a whole as well, however, is yet to be seen. Monetary policy will only start to unfold its full dampening effect this year, and the purchasing power losses experienced by households continue to reverberate. We would be well advised to continue keeping our expectations low.”

Further information

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