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KfW Research
German Economy
The current KfW Business Cycle Compass for download:KfW Business Cycle Compass Germany/Eurozone
Further information about the KfW Business Cycle Compass
The initially very strong sentiment improvement driven by the relaxation of coronavirus restrictions since May is weakening. In August, however, SME business confidence continued to brighten but much less than in the preceding months, remaining well below the pre-crisis level of February. For the first time in a good two and a half years, large enterprises are slightly more upbeat than SMEs. The easy part of the recovery since the historic slump in eeconomic activity in April is over and bringing it closer to what it was before the crisis this coming autumn and winter will be rather challenging by comparison.
KfW-ifo SME Barometer August 2020 (PDF, 119 KB, non-accessible)
The profound shock of the corona crisis has thrown many companies into distress. With their continuously strong lending, Germany's banks and savings banks are making an important contribution to overcoming the economic slump.
According to calculations by KfW Research, the growth of new lending to businesses and self-employed persons in Germany hardly slowed during the second quarter and remained on a high level, increasing by 6.0% year-on-year. The fact that long-term loans in particular were granted is good news for the stability of the economic recovery. Businesses have likely focused on ensuring the survival of their operations, while capital expenditure slipped into the background.
We expect economic momentum to slow in the further course of the year. The ongoing economic recovery is easing the pressure on the liquidity situation, while demand for investment loans should remain weak for some time to come.
KfW Credit Market Outlook: September 2020 (PDF, 88 KB, non-accessible)
The coronavirus pandemic has led to an economic slump of historic proportions in Germany and the euro area. The low point, however, was passed back in April. It was followed by a vigorous catch-up movement that translates into very high growth in the present quarter. However, headwinds are gathering strength.
KfW Research stands by its forecast that Germany’s gross domestic product will contract by around 6% this year, before growing again by 5% next year. Gross domestic product in the euro area is set to contract by around 8% overall in 2020. A severe second wave of infections remains the highest risk, although new restriction measures will likely end up being more targeted than in spring.
KfW Business Cycle Compass Germany/Eurozone August 2020 (PDF, 111 KB, non-accessible)
SME business sentiment rose for the third consecutive month in July. This shows that small and medium-sized enterprises were quite successful in relaunching their businesses after the containment of the first wave of infections. They started the summer quarter on a robust path of recovery. What is particularly encouraging is that situation assessments also improved. However, headwinds are building. Continuing high global infection rates are hurting export-oriented manufacturing in particular. The recent rise in new infections in Germany also poses a risk to almost all sectors.
KfW-ifo SME Barometer July 2020 (PDF, 106 KB, non-accessible)
Economics in Brief
What does the coronavirus crisis mean for Germany’s VC market? How are market participants responding and what are the consequences? In a special survey, 24 VC investors gave their views on specific aspects.
Start-ups are grappling with losses in turnover, which has also increased the risk of failure. At the same time, the crisis is impacting on their financing situation as even deals already committed to have not been closed. The main reason for this appears to be the great uncertainty caused by the coronavirus shock. However, the threat to further deals not materialising because of the coronavirus should have passed by now. Nevertheless, how long investors will now remain focused on their core business will presumably depend on how well businesses and economies get through the crisis.
Focus on Economics
German-Polish economic relations have developed extremely well. Germany’s second-largest neighbour has steadily climbed the rankings of its most important trading partners. Now, however, the coronavirus crisis is calling into question established structures of cooperation, particularly in the border regions. A more intensive dialogue is now required to jointly overcome the current challenges. The restructuring of production chains that is to be expected after the coronavirus crisis could even make German-Polish cooperation grow in importance.
Businesses are well-equipped for the crisis
In cooperation with 19 trade associations, KfW Group has conducted a business survey on banking behaviour and financing for the 19th time.
The most important results are:
- The financing situation remained good until the outbreak of the coronavirus crisis.
- The proportion of enterprises reporting difficulties in accessing credit was 13.4%.
- As before, however, small businesses are still much more likely to face difficulties in accessing credit.
- The positive development of businesses’ equity ratio and credit rating continued up until the beginning of 2020.
- Bank loans remain an important source of funding for businesses. Internal funding, however, continues to play by far the most important role in business financing.
Business Survey 2020 – Access to finance (Summary) (PDF, 83 KB, accessible)
The German VC market was unsettled by the uncertain consequences of the coronavirus crisis at the end of the first quarter of 2020 but the initial shock has passed for now. Business sentiment clearly recovered from the all-time low. In the second quarter the sentiment indicator of the early-stage sentiment rose by 50.0 to -11.1 balance points, reversing more than half of the coronavirus slump. VC investors’ assessments of both the current business situation and expectations recovered. The various sub-indicators also improved. VC investors are breathing a sigh of relief with respect to fundraising, exit opportunities, new investment and value adjustments, for example.
German Venture Capital Barometer: 2nd Quarter 2020 (PDF, 147 KB, non-accessible)
Confidence has returned to the German private equity market after the massive coronavirus slump. In the second quarter of 2020 the sentiment indicator of the later-stage segment reversed more than half of the first-quarter losses, rising by 45.6 to -40.6 balance points. Later-stage investors are again taking a more positive view of the current business situation and have higher expectations as well. Although sentiment has risen from its low, most indicators remain negative despite the rebound. Private equity investors are still disgruntled by the fundraising climate, exit opportunities and write-down pressure.
German Private Equity Barometer: 2nd Quarter 2020 (PDF, 147 KB, non-accessible)
Businesses of all size classes are finding it more difficult to access credit in the coronavirus crisis.
The KfW Ifo Credit Constraint Indicator has reached the highest level since the survey methodology was revised in 2017. More than one fifth of SMEs reported that banks were restrictive in loan negotiations in the second quarter of 2020. However, large enterprises also have to surmount growing obstacles when accessing credit.
But in view of the significantly increased loan default risks due to the deep recession, the difficulties in accessing credit are still limited. This contrasts with the global financial crisis of 2009, when more than 40% of the small and medium-sized manufacturing firms surveyed by the ifo Institute perceived banks’ lending policy as restrictive. The situation today is not just due to the greater resilience of the banking sector but also to the comprehensive economic support packages.
KfW-ifo Credit Constraint Indicator July 2020 (PDF, 146 KB, non-accessible)
The low number of new infections in Germany and the resulting easing of restrictions combined with strong economic-policy stimulus measures have led to a rapid surge in SME business sentiment at the beginning of summer. There is good reason for confidence to return, given the extensive stabilisation measures and success in containing the virus. However, risks remain very high as the further course of the pandemic is virtually impossible to predict.
KfW-ifo SME Barometer June 2020 (PDF, 116 KB, non-accessible)
Focus on Economics
The dark clouds of the coronavirus crisis are gradually clearing. Nevertheless, most of the small and medium-sized enterprises will feel the impact of the coronavirus crisis for a long time. That was one of the findings of the second representative supplementary survey based on the KfW SME Panel in early June 2020. Most enterprises do not expect to return to full economic activity before the spring of 2021. Around 2.3 million SMEs were affected by losses in turnover in May as well. Companies lost an average of 46% of their normally anticipated turnover. Overall, SMEs lost around EUR 88 billion in May. This is also putting pressure on their liquidity. It is true that the situation appears to have eased for some enterprises, with 25% currently reporting adequate liquidity reserves. But around one in five will run out of liquidity in four weeks at the latest unless the situation improves.
The coronavirus crisis has led to a sharp increase in lending dynamics. According to calculations by KfW Research, new lending to businesses and self-employed persons in Germany grew by 7.3% year-on-year in the first quarter. The growth rate thus nearly doubled on the final quarter of last year.
At the start of the coronavirus outbreak in March, access to short-term loans was a particularly important instrument for closing the abruptly emerging liquidity gaps. Even if the recovery has begun, German companies are still grappling with severe turnover losses in the pandemic. We therefore expect credit growth to continue increasing and reach its peak in the second quarter.
A number of economic policy measures are facilitating access to loans for businesses, making it easier for banks to expand their credit supply even amid rising risk costs. These measures also include the recently adopted economic stimulus programme.
KfW Credit Market Outlook June 2020 (PDF, 101 KB, non-accessible)
The coronavirus pandemic has caused unprecedented sentiment volatility in the SME sector. In May, business confidence recovered very sharply from its historic nosedive the month before. But what is remarkable are the relations. The rise in confidence from the previous month was the second strongest since the beginning of the timeseries but it made up for only a good one fifth of the decreases in March and April. The stronger sentiment is being carried solely by a record rise in business expectations, which nevertheless remain very pessimistic.
KfW-ifo SME Barometer May 2020 (PDF, 117 KB, non-accessible)
Focus on Economics
Many small and medium-sized enterprises are responding creatively to the coronavirus crisis, with 43% adapting their product/service offerings, sales method or business model. When combined with businesses that still plan to do this, that percentage even rises to 57%. Companies that were hit particularly hard by the crisis and those that have previously innovated are leading the charge.
SMEs are responding creatively to the coronavirus crisis (PDF, 135 KB, non-accessible)
The uncertain consequences of the coronavirus pandemic have unsettled the German VC market. Business confidence has plummeted to an all-time low. In the first quarter of 2020, the business climate indicator of the early-stage segment nosedived by 72.3 points to -61.3 balance points – an unprecedented decline. VC investors’ assessments of both the current business situation and expectations have deteriorated dramatically.
German Venture Capital Barometer: 1st Quarter 2020 (PDF, 131 KB, non-accessible)
The coronavirus pandemic has hit the private equity market hard. The German private equity market has experienced a massive loss of confidence. In the first quarter of 2020, the sentiment indicator of the later-stage segment plunged by 94.3 points to -86.7 balance points. Never before have later-stage investors been more pessimistic about both their current business situation and their expectations. The indicator for the current business situation dropped to -82.2 balance points, while the indicator for business expectations fell to -91.2 of -100 possible balance points. The fund-raising climate has now fallen from a record-high level in the previous quarter to just above its previous lowest level.
German Private Equity Barometer: 1st Quarter 2020 (PDF, 129 KB, non-accessible)
Economics in Brief
The short-time allowance secures millions of jobs. This contrasts with the US, where 34 million workers have filed unemployment claims. But if the lockdown lasts too long, many workers on short-time arrangements are likely to become unemployed. It therefore appears to be advisable to relax social distancing rules as much as possible and expedite development of a vaccine or treatment. The public and private sector should join forces to achieve this in a concerted approach – at international level.
How the coronavirus crisis is affecting the German labour market (PDF, 85 KB, non-accessible)
The pandemic has hit Europe like a bolt of lightning. The recession is unprecedented in breadth and depth, with the German economy expected to contract by around 6% in 2020. However, in the absence of a second wave of infections, an initially strong and then faltering recovery should begin as early as the second half of the year, which will be reflected in a catch-up growth rate of 5% in 2021. Output will thus return to its pre-crisis level in autumn of 2021. Aggregate output loss will then be around EUR 300 billion.
In the euro area, the recession will likely be even deeper (2020: -7%; 2021: +6%), since the pandemic has hit the other large countries – France, Italy and Spain – particularly hard and the structural environment is unfavourable as well.
KfW Business Cycle Compass Germany/Eurozone May 2020 (PDF, 109 KB, non-accessible)
SME business sentiment continues in freefall, dropping even more sharply in April than in March. The mood is thus even more depressed than eleven years ago, at the height of the financial crisis. Both subindicators stand out with new negative records. Situation assessments have deteriorated more than ever before and business expectations have plunged to a new historic low. We are confident nonetheless that we saw sentiment bottom out in April – thanks to the comprehensive coronavirus containment strategy, the successes achieved in stopping the spread of infections and the now announced or already implemented easing of restrictions.
KfW-ifo SME Barometer April 2020 (PDF, 116 KB, non-accessible)
Focus on Economics
As anticipated, the coronavirus crisis has hit the SME sector with force. A current special survey based on the KfW SME Panel shows the magnitude of the impact. In March, more than 2.2 million SMEs suffered losses in turnover as a result of the crisis. On average, they lost slightly more than half the normally anticipated March turnover alone, or around EUR 75 billion. Still, SMEs are very resilient against crises of this nature because they have continuously improved their equity base and built up financial buffers. This is helping them to temporarily absorb losses in the current crisis and reduce pressure on liquidity. If the lockdown drags on, however, SMEs’ losses will increase and half of them will run out of liquidity reserves by the end of May.
Launched in troubled times but at the right moment:
We are pleased to announce the publication of the first edition of the KfW-ifo Credit Constraint Indicator!
Right now, the new quarterly indicator series by KfW Research is a valuable instrument for monitoring and assessing the supply of credit to SMEs and large-scale enterprises during the crisis. Like the KfW-ifo SME Barometer, it is based on data from the ifo economic surveys.
The evaluation of the first quarter of 2020 shows a good starting position. Credit constraint was low across both size classes. Only 17.2% of SMEs reported difficulties in loan negotiations. That means the impact of the coronavirus on the credit market is yet to be seen.
KfW-ifo Credit Constraint Indicator April 2020 (PDF, 107 KB, non-accessible)
The coronavirus crisis has hit the export-oriented German economy in what was already a difficult situation. Growing tensions in international trade relations and a worsening global economy also affected SMEs, whose international turnover grew by a mere 3.1% in 2018 to EUR 595 billion, down from 5.5% in 2017. The KfW ifo Export Expectations of the German SME sector were persistently negative in 2019, before crashing through the floor in March 2020. The approx. 800,000 internationally active SMEs have been hit particularly hard by the consequences of the coronavirus crisis in Europe, where their most important sales and procurement markets are located. Even though the trade conflict between the EU and the US is being overshadowed by the coronavirus crisis, one in three SMEs are worried about a possible escalation.
KfW Internationalisation Report 2020 (PDF, 1 MB, non-accessible)
The SME business climate is experiencing an historically unique collapse in light of the corona crisis. This drop of 20 points considerably overshadows the sharpest previous decline during the financial crisis. Unlike in previous recessions, the slump is not primarily being caused by the more cyclical industrial sector. Rather, many parts of the domestic economy have been deliberately shut down. As a result, the business climate of small and medium-sized service providers, as well as that of retailers and wholesalers, is plummeting. But it still fails to capture the full extent of the crisis. During the survey period, while it became apparent that the pandemic would escalate and the resulting restrictions would be intensified, most of them were not yet in force in Germany. The full impact is not likely to be mapped until April.
KfW-ifo SME Barometer March 2020 (PDF, 130 KB, non-accessible)
Coronavirus and credit: an important building block to limit the economic fallout
The economy is in the stranglehold of the pandemic. Around the world, drastic restrictions to public life are necessary to protect human life and health. The consequences will be severe because they affect the entire German economy.
The credit market plays an important role in this situation because abrupt turnover losses lead to liquidity shortages in a large number of enterprises. That means German financial institutions have to join forces to get the real economy through the epidemic unharmed. The regulator’s move to loosen equity requirements, the measures of the ECB and expanded promotional programmes from KfW combine to form a convincing package that will bolster the credit market.
KfW Credit Market Outlook Special March 2020 (PDF, 69 KB, non-accessible)
The German VC business climate has weakened again but remains good. The business climate indicator of the later stage segment fell by 8.0 points to 10.1 balance points in the fourth quarter of 2019. VC investors rated their current business situation significantly poorer than in the previous quarter, while business expectations remained relatively stable. The indicator for the current business situation decreased to 13.2 balance points (-14.3), while the indicator for business expectations stabilised at 7.0 balance points (-1.7)
German Venture Capital Barometer 4th Quarter 2019 (PDF, 145 KB, non-accessible)
The business climate in the German private equity market hardly changed on the preceding quarter. In the fourth quarter of 2019, the business climate index for the later stage segment remained unchanged at 6.3 balance points. Later stage investors gave their current business situation and expectations nearly the same rating as before. The indicator for the current business situation was 11.1 balance points (-1.9), while the indicator for business expectations was 1.5 balance points (+1.9). On average for the year 2019, the business climate in the private equity market was on the upper edge of the normal range and thus remained well behind the two very good previous years.
German Private Equity Barometer 4th Quarter 2019 (PDF, 146 KB, non-accessible)
In February, small and medium-sized enterprises in Germany did not appear to be concerned about the coronavirus outbreak, which was still concentrated in China at the time. According to the current KfW-ifo SME Barometer, SME business sentiment rose again moderately after falling in the previous month. The driver behind the improved sentiment was a rise in expectations. On the other hand, a coronavirus effect already began to appear among large enterprises, whose business confidence suffered a setback for the first time since October 2020.
KfW-ifo SME Barometer February 2020 (PDF, 120 KB, non-accessible)
The German economy lost pace in the final quarter of 2019 and will probably sit just slightly above stagnation level in the first half of 2020 as well. The outbreak of the novel coronavirus is extending what has already been a record long industrial recession into the year 2020. We predict GDP growth of 0.8% in 2020, which is 0.1 percentage points lower than previously forecast. In its initial forecast for 2021, KfW Research expects growth to accelerate to 1.3%. Downward risks predominate.
KfW Business Cycle Compass Germany February 2020 (PDF, 96 KB, non-accessible)
The year 2020 began with a setback for small and medium-sized enterprises. Their business climate dropped to the lowest level since August of last year. The decline in sentiment is exclusively due to the renewed drop in expectations. Large enterprises, however, showed clear signs of life. The positive trend among large enterprises reflects easing tensions in the foreign trade environment, while the hitherto reliable domestic economy lost a bit of steam. The coronavirus outbreak currently poses a new burden. All in all, economic momentum remains subdued for the time being.
KfW-ifo SME Barometer January 2020 (PDF, 130 KB, non-accessible)
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