KfW-ifo SME Barometer: Economic outlook brighter than dim business sentiment

• SME business confidence remains on a low level

• Situation assessments have deteriorated slightly, while expectations remained pessimistic

• Economic outlook better than sentiment

The current KfW-ifo SME Barometer shows that SME business confidence stagnated on a low level in February. Dropping by 0.1 points to -22.1 balance points, sentiment was almost exactly as low as in the previous month. Business expectations remained unchanged, stagnating on a level of -27.5 balance points. Situation assessments also changed only minimally, dropping by 0.2 points to -16.5 balance points.

A minor improvement was reported by service providers, where both situation assessments and expectations rose, showing that sentiment in this sector was still the best. In the manufacturing sector, on the other hand, confidence continued to drop in February, while sentiment in the particularly pessimistic wholesale sector plunged yet again.

Sentiment among large enterprises has fluctuated, trending in a sideways pattern for several months now. Dropping by 1.1 points in February, it offset the rise in the previous month and again ended up at -27.3 balance points, an even slightly lower level than among SMEs.

SMEs’ employment expectations hardly changed. Those of large enterprises fell, on the other hand, signalling a gradual end to the recent phase of strong employment growth. With a view to inflation, a positive development in February was that sales price expectations fell again significantly among SMEs (-5.6 points) and large enterprises (-2.2 points).

“The downward spiral of business sentiment practically came to a standstill in February, but sentiment among SMEs remained deep in the doldrums nonetheless. Thus, a wide gap remains between sentiment and the actual trend, since in the past it was only during deep recessions that we saw the low current level of business confidence. Although the economic outlook is generally modest, even the most pessimistic forecasts for 2024 are far away from such scenarios,”

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Particularly in manufacturing, there are still hardly any signs of an economic turnaround. In the services sector, however, recent economic surveys at least reveal signs of a consumption-driven recovery, which we expect to set in this year. Household consumption grew again slightly in the past quarters already, and strong increases in real wages mean that there should be significantly more to come here, which is why we expect modest economic growth of +0.3% again this year. For 2025 we expect solid economic growth of 1.2% as a result of continuing robust growth in consumption and global monetary policy easing, which will begin already this year”,

said Köhler-Geib.

The current KfW-ifo SME Barometer can be downloaded from: KfW-ifo SME Barometer