KfW Research: Sentiment among SMEs gives rise to hope for economic turnaround

• KfW ifo Business Climate Index rises for the third consecutive month
• Situation assessments and business expectations in the SME sector both turned positive
• Among large enterprises, the main construction industry is a strong standout

The trend in business confidence among German SMEs gives rise to hope for an improvement in Germany’s economic situation. In May, the KfW-ifo SME Barometer increased for the third consecutive month – by a noticeable 2.5 points to now -14.7 balance points. With that, it remains below the long-term average represented by the zero line. Nonetheless, the rule of thumb is that this upward movement signals a positive trend reversal.

Both components of the business climate index contributed to the most recent rise. Situation assessments improved by 1.2 points to -16.7 balance points – the highest level since July of last year. Six-month business expectations also rose, improving by a significant 3.7 points to now -13.2 balance points. Expectations in the SME sector thus reached a higher level than situation assessments, as they did in the previous two months – a constellation that often precedes an economic recovery.

The boost to business sentiment in May rested on the broadest possible basis, supported by all five main economic sectors in which SMEs operate, all of which posted gains.

The mood also improved among large enterprises, although to a lesser extent than among SMEs and driven only by expectations for the future. Their business confidence gained 1.8 points to -21.2 balance points. It was driven by a significant increase in expectations by 4.2 points to -13.9 balance points. Situation assessments, on the other hand, fell slightly by 0.7 points to -29.2 balance points. Sentiment among large enterprises also improved in all five main economic sectors, as it did among SMEs.

The main construction industry was a particular standout among large enterprises. Large construction firms were the only segment among all sectors and size classes where sentiment turned slightly positive again for the first time since Russia’s invasion of Ukraine in February 2022, now sitting at +1.6 balance points, slightly above the historic average. With their focus on public-sector and below-ground construction, large construction firms have a particularly promising outlook thanks to the new Special Fund for Infrastructure and the expenditure plans which it enables the Federal Government to embark upon. In addition, the monetary easing measures of the European Central Bank are bolstering demand for construction services by enabling more favourable financing terms.

“Businesses of all economic sectors and size classes are slowly seeing light at the end of the tunnel. Despite repeated barrages of comments by President Trump, and even if the tariffs will probably remain much higher than at the start of the year, businesses are anticipating that viable compromises will be reached in the trade policy negotiations. Surely that is a major reason for the higher expectations,”

said Dr Dirk Schumacher, Chief Economist of KfW.

KfW evaluates the findings of the ifo Institute’s economic surveys for the KfW-ifo SME Barometer, broken down by company size classes and main economic sectors. The current KfW-ifo SME Barometer can be downloaded from KfW-ifo SME Barometer | KfW

KfW supports SMEs with a number of promotional programmes on behalf of the Federal Government. More information is available at We are strengthening the SME sector (in german)