KfW Research: Sentiment among German SMEs: on closer inspection, the news is good

• SME business climate index is treading water
• A look at individual sectors reveals generally positive trend
• High order intake is encouraging

At first glance, the indicators of German SME sentiment in January were disappointing, with businesses waiting for positive signals for the German economy. At the start of the year, the business sentiment of small and medium-sized enterprises made a sideways movement, edging slightly lower by 0.1 points to now -15.0 points. Thus, sentiment remains well below the zero line, which represents the long-term average.

In reality, however, the trend in January was actually positive news that highlights the crisis resilience of German SMEs. After all, the start of the year was weighed down by new geopolitical conflicts, particularly the discussions around Greenland.

Besides, a look at individual SME sectors reveals a positive development. Sentiment there has improved almost everywhere, especially in retail, followed by wholesale. Manufacturing was the only sector where sentiment failed to improve, although it did not worsen either. The fact that overall business sentiment across the SME sector has not improved is merely due to a technical effect associated with the seasonal adjustment to this time series. That masks the general improvement in SME sentiment in January.

"Right now, things are better for SMEs than the index alone would suggest. We continue to believe that the German economy will kickstart its recovery in the months ahead and sentiment among businesses will brighten,"

said Dr Dirk Schumacher, Chief Economist of KfW.

New manufacturing orders, which increased considerably in the autumn, are also encouraging. The long-awaited fiscal impetus is presenting itself in the form of large-volume orders. These will reach only individual businesses at first but will flow through to the broad economy little by little in the form of follow-on orders.

Confidence among large enterprises showed a similar development in January as for SMEs, with sentiment stagnating at -19.4 points. Whereas six-month business expectations worsened among SMEs while their assessments of the current situation improved moderately, the trend was exactly the opposite among large enterprises.

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).}