KfW Research KfW-ifo SME Barometer: A hint of spring

• SME business confidence has brightened noticeably
• Expectations in particular have improved, but so have situation assessments
• Sentiment among large enterprises is catching up
• Businesses are coming out of the doldrums, giving hope that growth will return from the spring

At last, business sentiment among German SMEs has found a way up again, making a sizeable leap of 4.9 points in March to -16.8 balance points. Although it is still well below average even after this second straight rise, the trend is pointing in the right direction in all sectors: Situation assessments rose by 2.1 points to -14.3 balance points. This is a moderate but positive departure from the trend, after the situation in previous months had deteriorated continuously. Expectations even jumped by 7.3 points but, at -19.3 balance points, remained well below the zero line, which stands for the long-term average.

Sentiment among small and medium-sized enterprises has improved in all economic sectors. Business confidence rose most sharply among wholesalers- (+9.1 points) and retailers (+4.9 points). This most likely reflects the revival of household consumption. Among SME retailers, expectations and situation assessments both increased substantially, which means that the latter are now only slightly below average. Business sentiment in the services sector also increased by a noticeable 4.6 points, and confidence among SME manufacturers rose by 3.4 points. The lowest sentiment was measured among small and medium-sized construction firms. Even so, it rose by one point in March.

Business confidence among large enterprises increased even more noticeably than among SMEs (+7.1 points). It now sits at -19.7 balance points, so that the gap to SMEs which had widened in the course of 2023 has narrowed considerably.

“At last, it looks as though the long-awaited economic spring is coming”,

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

“After many months of excessively dismal business sentiment, March is showing clear signs of a turnaround. Given the considerable increases in real wages, household consumption in particular is becoming a driver of economic activity, improving the outlook for retailers and consumption-related services enterprises. To be sure, the activity indicators for the manufacturing sector are still predominantly negative, but the expected resurgence in demand from abroad and the prospects of more relaxed monetary policy give hope for improvement. The situation assessments and expectations of businesses are still on a very low level, but every sentiment upswing starts small”,

added Köhler-Geib.

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