KfW Research: SMEs are unable to halt the downward trend in sentiment

• KfW-ifo SME Barometer falls for the sixth consecutive month
• Retail sector is a minor bright spot
• Employment expectations have dimmed further

The mood among German SMEs worsened for the sixth straight month in November. Falling by 0.9 points, business sentiment now sits at -20.5 balance points – well below the long-term average represented by the zero line. The main reason is that small and medium-sized enterprises rate their current business situation much worse than in the previous month.

These are the findings of the KfW-ifo SME Barometer, in which KfW evaluates the results of the ifo economic surveys by company size classes and main economic sectors.

The situation assessment component of the business climate index fell by 2.2 points to -21.8 balance points. This marks a continuation of the downward trend that has persisted already since mid-2022. Six-month business expectations, on the other hand, improved slightly on a low level by +0.4 points to -19.4 points.

On a more encouraging note, business sentiment among SME retailers has brightened. Their business confidence has improved since August, including, in particular, their situation assessments, indicating that retail turnover is also growing in the current quarter, after increasing in the third quarter. Sentiment among small and medium-sized industrial firms also improved slightly. For the moment, Germany’s more domestically focused SMEs appear to be unimpressed by the threat of protectionist measures from the US.

It is a different story among large industrial enterprises. They have a much more negative view of not just their current business situation but also – and even more so – their business outlook than a month or a year ago.

In November, the business climate index for large enterprises fell by 2.6 points overall to -22.9 balance points.

Employment expectations worsened among both large enterprises and SMEs, and in large enterprises they are well below those of SMEs in absolute terms. Many businesses, especially industrial firms, wholesalers and large retailers, are planning to reduce their workforce.

“SME business sentiment in November was as bleak as grey autumn weather. Virtually the only sector with bright spots was retail, where a tentative recovery has begun among small and medium-sized enterprises”,

said Dr Philipp Scheuermeyer, economic expert at KfW Research.

“SMEs have previously been an anchor of stability with respect to employment expectations. But the situation has clouded over here, too, and it is unclear how long businesses can hold onto their workers while production capacities remain underutilised.”

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

KfW-ifo SME Barometer | KfW

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