KfW Research: SME sentiment worsened at the end of the year

• KfW ifo Business Climate Index has fallen
• Christmas sales appear to have been a disappointment for retailers
• KfW Research remains optimistic for 2026

German SMEs are not in a joyous Christmas mood at the end of the year. The business sentiment of small and medium-sized enterprises fell again slightly in December, dropping by 0.5 points to -15.0 balance points. Thus, sentiment remains clearly below the zero line, which represents the long-term average.

SME business confidence fell in almost all sectors in December, but most sharply in the services sector. Six-month business expectations in this sector deteriorated considerably, while assessments of the current situation improved slightly. Sentiment among retailers also worsened, driven mostly by situation assessments. This could be an indication that Christmas sales have been a disappointment.

These are some of the findings of the KfW-ifo SME Barometer. In it, KfW evaluates the findings of the ifo Institute's economic surveys, broken down by company size classes and main economic sectors.

“The improvement in SMEs’ business expectations that began at the start of the year has been stagnating already since late summer. Businesses have become very disillusioned since autumn. In broad segments of manufacturing the problems are too great, especially the China shock,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“We nevertheless expect moderately positive growth in Germany in the fourth quarter of 2025 and a noticeable rebound in 2026.”

Confidence also fell among large enterprises in December. Here, too, the sentiment downturn was particularly significant among service providers as well as in industry. In the main construction industry, in contrast, things were improving, also among large enterprises.

Employment expectations are still turning negative among large enterprises. Many businesses appear to be expecting job losses. Among SMEs, on the other hand, employment expectations are generally steadier, although the drop in employment expectations here was slightly steeper in December.

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 (German page).