German Economy

KfW Research has calculated that new lending to businesses and self-employed persons in Germany grew by 9.6 % in the third quarter, another unusually strong increase on the same period last year. Short-term loans again played a key role. Looking ahead we see the credit market growing at a slower pace. Interestingly, this is likely to be the result of the stabilisation of the business cycle which we predict for the coming months.

PDF for download:

KfW Credit Market Outlook December 2018  (PDF, 179 KB, non-accessible)

Sentiment among German SMEs cooled noticeably in November. Thus, with a one-month delay, small and medium-sized enterprises partly followed the strong decline in large enterprises’ business sentiment, although these recovered slightly again in November. But this result is not a suitable indicator of a long and frosty economic winter. The levels of almost all indicators of the KfW-ifo SME Barometer are still much too good for this.

PDF for download:

KfW-ifo SME Barometer November 2018  (PDF, 204 KB, non-accessible)

Third-quarter GDP growth was disappointing, particularly as a result of the WLTP problems in the automotive industry. Even with a strong rebound at the end of the year, Germany’s economy will now grow by only 1.6 % in 2018 (previous forecast 1.8 %). KfW Research still expects real growth of 1.6 % for 2019. Germany is thus set to continue growing roughly at the rate of its production potential this year and next. This is actually positive for the chances of Germany’s already long-standing upswing continuing. Still, the downward risks are substantial.

PDF for download:

KfW Business Cycle Compass Germany November 2018  (PDF, 185 KB, non-accessible)

Economics in Brief

Small and medium-sized enterprises (SMEs) in Germany are regular targets of financial investors. Between 2005 and 2008, this group of investors was on the buyer side in around 10.3 % of all mergers and acquisitions in the SME sector. That share has risen to 13.8 % since 2013. With a share of 52 %, a large portion of the financial investors operating in the M&A market for SMEs came from Germany. Enterprises from the US and the UK were also well represented (with 9 % each). Manufacturing SMEs were particularly popular among this group of investors, accounting for 36 %. Enterprises from the finance and insurance sector were second on the shopping list (14 %). Financial investors were mainly interested in acquiring minority shareholdings (share of 52 %). Full acquisitions were much less common by comparison (25 %).

Financial investors in the M&A market for SMEs: activities are picking up slightly  (PDF, 233 KB, non-accessible)

Focus on Economics

In the current economic upswing, Germany's businesses are investing much less in their real capital stock than they are generating in financial resources. Their growing financial surplus is a key driver of the very high current account surplus for which Germany is facing broad international criticism. We are therefore taking a closer look at corporate decisions on savings and investment in order to identify starting points for correcting the current account imbalance.

Businesses are saving more than they are investing – hampering any rapid correction of Germany’s current account imbalance  (PDF, 314 KB, non-accessible)

Focus on Economics

Established enterprises should also develop their technological capacities in order to fully harness the opportunities of growing digitalisation. One way to do this is to acquire or participate in enterprises that offer technologies or knowledge that are relevant to digitalisation. Information and communication technology (ICT) firms would be particularly attractive targets. Analyses by KfW Research show that acquirers’ interest in small and medium-sized ICT firms that offer products and services that are relevant to digitalisation has indeed increased slightly since the mid-2000s. The number and share of M&A deals targeting a small or medium-sized IT or information service provider have increased moderately. But so far there has been no wave of takeovers. Moreover, most of the M&A transactions remain within the ICT sector. Other sectors also show only a slowly growing interest in small and medium-sized IT and information service providers.

Waiting for the M&A boom in the ICT sector – despite digitalisation  (PDF, 323 KB, non-accessible)

In October, SMEs proved to be an anchor of stability for business sentiment. While the business climate among large enterprises nosedived, sentiment among small and medium-sized enterprises remained practically unchanged on a high level. Global risks appear to be less of a concern for SMEs than for large enterprises.

PDF for download:

KfW-ifo SME Barometer October 2018  (PDF, 211 KB, non-accessible)

Focus on Economics

Two thirds of SMEs planning to hire skilled workers in the next three years expect to face recruitment difficulties. That is significantly more than in 2014. A worrying trend is that the causes of the problem are clearly shifting towards a skills shortage. SMEs are increasingly concerned about not finding suitable candidates in the occupations needed. Other causes, such as lack of additional qualifications or excessively high wage demands, are fading into the background. Labour force participation rates, skilled migration and continuing education investment should (continue to) rise in order to prevent skills shortages.

Many job openings, few job seekers: SMEs expect a shortage of skilled workers  (PDF, 294 KB, non-accessible)

The German private equity market was in good shape in late summer. The business climate fell slightly overall but remains very good. In the third quarter of 2018, the business climate index of the German Private Equity Barometer fell by 5 points to 72.1 balance points. The early-stage climate exceeded the previous quarter’s peak level again slightly, while the later stage segment took a breather from its record-breaking run. The signs of weakness in the market environment that appeared in the previous quarter have vanished.

PDF for download:

German Private Equity Barometer 3rd Quarter 2018  (PDF, 210 KB, non-accessible)

Focus on Economics

The debate over TARGET balances continues unabated. This is hardly surprising because the claims of the Deutsche Bundesbank on the TARGET2 system have grown to nearly EUR 1,000 billion. But exactly how serious are the risks for the German state and taxpayer?

Our paper explains how the balances emerge, to what extent monetary policy contributes to their increase and why TARGET balances do not constitute loans from the Bundesbank to other euro countries. Clearly, the construction of the monetary union still has many gaps that have to be closed. But TARGET2, a key element of the financial infrastructure in Europe, is not one of them.

PDF for download:

What TARGET balances are and how they emerge  (PDF, 344 KB, non-accessible)

No sign of letting up: SMEs are on a path of growth in Germany and abroad

Germany’s SMEs continue to grow at a high rate. Employment in small and medium-sized enterprises has broken yet another record. Turnovers have grown at a rate not seen in years. International business also appears to have recovered from its slump. But profitability and productivity are unable to keep up. The investment upswing is consolidating but comes with greater concentration, as higher volumes are distributed across fewer investors. Micro-businesses in particular have stepped up investment and are using more long-term bank loans than ever. However, demand for credit to finance investment appears to have passed its zenith and companies are using more of their financial cushions. Should the financing climate become tougher, SMEs are in the best possible position thanks to record equity levels. Their outlook is therefore very positive. These and other findings are detailed in the new KfW SME Panel 2018.

KfW SME Panel 2018  (PDF, 924 KB, non-accessible)

Focus on Economics

Small and medium-sized enterprises (SMEs) in Germany are sought-after targets of mergers and acquisitions (M&As). On average from 2005 to 2017, slightly more than 1,100 M&As targeting a German SME were conducted each year. Investors were particularly interested in manufacturing SMEs (34 %) and information and communication technology enterprises (19 %). So far, domestic acquirers have dominated (average share in 2005–2017: 58 %). But activities of foreign investors have picked up since 2013. They are significantly more interested in manufacturers than their German counterparts.

PDF for download:

M&A deals in the German SME sector – manufacturers are most sought after  (PDF, 361 KB, non-accessible)

Focus on Economics

Real estate prices in Germany have risen sharply since the beginning of the decade. But the boom is very different from the real estate bubbles that led to serious macroeconomic crises in the US, Spain and Ireland. Apart from the fact that German households have low debt levels, the moderate weight of the construction sector in particular indicates that even the bursting of a price bubble would not lead to severe macroeconomic problems. For example, construction investment accounts for only one tenth of Germany’s gross domestic product today, whereas a full one fifth of economic output depended on it in Ireland and Spain before the crises.

PDF for download:

Germany’s real estate boom: Is this time different?  (PDF, 158 KB, non-accessible)

Sentiment among SMEs improved for the third consecutive month in September. Since Europe has moved out of the firing line of the US administration's trade policy aggressions, business expectations in particular have improved. Situation assessments have fallen slightly but remain on a high level.

PDF for download:

KfW-ifo SME Barometer September 2018  (PDF, 138 KB, non-accessible)

In August, sentiment among SMEs improved for the second consecutive month. The improvement is largely due to companies’ noticeably more optimistic outlook on the future. It was likely nurtured by the truce in the trade conflict agreed between Trump and Juncker. However, this means that businesses’ expectations for further progress on global trade issues are also quite high.

PDF for download:

KfW-ifo SME Barometer August 2018  (PDF, 69 KB, non-accessible)

After a first quarter burdened by special factors, between April and June 2018 Germany’s economy failed to achieve the vigorous rebound initially hoped for. The economy is still growing at a robust rate but many global risks have considerably dampened the optimism that prevailed at the turn of the year. We have lowered our real growth forecast for 2018 to 1.8 % (previous forecast: 2.1 %) and for 2019 to 1.6 % (previous forecast: 1.9 %).

PDF for download:

KfW Business Cycle Compass Germany August 2018  (PDF, 53 KB, non-accessible)

The second half of the year began with positive news for the German economy: In July, small and medium-sized business sentiment brightened again slightly for the first time since January. However, while it illustrates a high degree of satisfaction it also reveals a substantial amount of concern over the future. Germany’s upswing is not under threat, at least not in the short term. We expect second-quarter GDP to have grown by just under half a per cent.

PDF for download:

KfW-ifo SME Barometer July 2018  (PDF, 115 KB, non-accessible)

Focus on Economics

Warnings are issued from time to time about a possible 'zombification' of Germany's corporate landscape. But such concerns are unfounded for the country’s SMEs, as analyses based on the KfW SME Panel now demonstrate for the first time. The study shows that a critical debt sustainability ratio can be demonstrated for only around 5 % of SMEs, whose profits are insufficient for them to meet their interest obligations. This modest number of presumed zombie companies has remained nearly unchanged even after the start of the low interest-rate policy. The investment and productivity levels of these enterprises remain in a normal range despite low profitability. This is a strong indication of an SME sector that is generally structurally sound.

PDF for download:

Concerns about ‘zombie companies’ in the SME sector are unfounded  (PDF, 76 KB, accessible)

The German private equity market has carried the momentum from the start of the year into early summer, with sentiment reaching a new record high. In the second quarter of 2018, the business climate index of the German Private Equity Barometer rose by 10.4 points to 77.1 balance points. Both the business situation and business expectations reached new highs. The business climate probably received its decisive impetus from the very positive development of demand for private equity. The fundraising climate and exit environment, however, are showing signs of a reversal. The business climate reached new record levels in both the early-stage and later-stage segment, with the later-stage segment crossing the 80-point mark for the first time.

PDF for download:

German Private Equity Barometer 2nd Quarter 2018  (PDF, 85 KB, non-accessible)

Focus on Economics

Employment in Germany has been growing for thirteen years now – the longest phase of expansion of the past 50 years. But the growing skills shortage is raising fears that the jobs boom will soon come to an end as the supply of new workers begins to tighten. These fears are justified as demographic change is set to exacerbate the skills shortage. It is likely to create serious bottlenecks across wide sections of the economy after 2030 unless countermeasures are taken. This paper examines the causes that have made the German ‘jobs miracle’ possible. Based on the findings, the paper makes recommendations to successfully meet the challenges of demographic change.

PDF for download:

Is there no end to Germany’s jobs boom? What we can do now to meet our skills needs in the future  (PDF, 368 KB, non-accessible)

Economics in Brief

In 2017, migrants were responsible for one in five business start-ups in Germany and the trend is continuing. But as a result of the renewed decline in overall start-up activity, the absolute number of migrant start-ups fell to a new low of 115,000. Migrants are typically more entrepreneurial than the average citizen. In the past years, however, the migrant start-up rate was closer to the average. The latest data of the KfW Start-up Monitor show that the start-up rate among migrants in 2017 was nearly equal to the general start-up rate – an effect of the very tight labour market.

PDF for download:

Migrants’ start-up propensity is now in line with the average  (PDF, 51 KB, non-accessible)

Credit market sentiment remains strong

Together with 20 trade associations, KfW Group has carried out a business survey on bank behaviour and financing for the 17th time.

The most important findings are:

• Financing climate amongst German businesses is again at an all-time high
• Share of businesses reporting problems with access to finance at a low
• Bank loans remain an important source of finance but: fewer businesses participate in loan negotiations
• Businesses are concerned about a shortage of skilled workers and a weakening economy

Business Survey 2018 – Summary  (PDF, 15 KB, non-accessible)

In June, business confidence in Germany’s SME sector dropped for the fifth consecutive month but only moderately. After slipping 0.3 points, it is now at 13.8 balance points. The imminent escalation of the trade conflict with the US appears to be generating only little additional uncertainty among SMEs. At the time of the survey, the German government crisis had not yet deepened.

PDF for download:

KfW-ifo SME Barometer June 2018  (PDF, 113 KB, non-accessible)

KfW Research has calculated that new lending to businesses and self-employed persons in Germany grew at a faster rate in the first quarter of this year than at any time since the third quarter of 2008. But now the economy has shifted down a gear. That should soon affect the momentum of new lending business as well.

PDF for download:

KfW Credit Market Outlook June 2018  (PDF, 76 KB, non-accessible)

In May, business confidence in Germany’s SME sector deteriorated for the fourth consecutive month. It fell by one point to 13.9 balance points, mainly because of lower business expectations. The protectionist stance of the US administration and the political situation in Italy pose higher risks to the economy.

PDF for download:

KfW-ifo SME Barometer May 2018  (PDF, 72 KB, non-accessible)

The labour market continues to exert a firm grip on start-up activity in Germany. Despite the cyclical upswing, the number of first-time founders dropped again in 2017. A mere 557,000 persons started a new business of their own – fewer than ever before. What is positive is the renewed improvement in structural quality. Two and a half times more opportunity entrepreneurs than necessity entrepreneurs started in 2017. The number of innovative, digital and high-growth business founders has also grown in both categories. This is a positive sign for the 2017 start-up cohort’s chances of success.

PDF for download:

KfW Start-up Monitor 2018  (PDF, 528 KB, non-accessible)

Germany’s upswing remains on track. KfW Research confirms its GDP growth forecast of 2.5 % for 2018 and issues a solid preliminary forecast of 1.9 % growth for 2019. Serious risks of overheating are absent amid generally expected restrained wage and price growth. Increasingly scarce production capacities and the interest rate reversal, however, will cause the currently very high growth dynamic to level off in future.

PDF for download:

KfW Business Cycle Compass May 2018  (PDF, 73 KB, non-accessible)

The German private equity market remained in high spirits at the beginning of the year. In the first quarter of 2018, the business climate index of the German Private Equity Barometer rose by 2.4 points to 66.7 balance points. Both the business situation and expectations improved on the previous quarter. The business climate indicator and most of the other indicators remained very stable at the start of the year. Only the fundraising and innovation climates fell slightly but their general upward trend remains intact. The two segments of the private equity market experienced different trends. The business climate in the venture capital market cooled off again slightly. The business climate in the later-stage segment, on the other hand, recovered from its previous decline.

PDF for download:

German Private Equity Barometer 1st Quarter 2018  (PDF, 85 KB, non-accessible)

Confidence continues to drop across broad sections of the German economy, according to the debut edition of the fundamentally revised KfW-ifo SME Barometer. Along with export expectations, the inclusion of the service sector is the most important new feature of the first conceptual reform to the barometer since it was first published in December 2004. On balance, however, the April findings are neither cause for excessive pessimism nor uncritical optimism.

PDF for download:

KfW-ifo SME Barometer April 2018  (PDF, 114 KB, non-accessible)

The threat of a protectionist spiral triggered by the US is weighing on sentiment. The SME business climate remains on a high level but is now clearly below its record of last November. We remain optimistic for now and predict that growth will slow but remain healthy for the foreseeable future. However, downward risks are mounting, particularly if growing concerns over the introduction of new trade barriers should have a heavier impact on investor confidence.

PDF for download:

KfW-ifo SME Barometer March 2018  (PDF, 78 KB, non-accessible)

Germany’s innovation system has long been one of the strongest in Europe. In the past years, however, it has dropped two positions in the European ranking. Reasons include small and medium-sized enterprises’ decreasing innovation activity and the low number of fast-growing enterprises.

PDF for download:

The performance of the German innovation system is falling behind other countries  (PDF, 65 KB, non-accessible)

Regional faces of Germany’s SMEs: a state-by-state comparison

Germany's business landscape shows astonishing regional peculiarities. This is confirmed by the new KfW SME Atlas 2018, which provides previously unknown insights into the regional diversity of the SME sector. On the basis of the representative KfW SME Panel, the KfW SME Atlas presents the first comparative structural overview of the differences and commonalities of small and medium-sized business activity by federal state for the years 2012 to 2016. The KfW SME Atlas thus provides a comprehensive information resource for interested members of the business and research community and for economic policymakers.

KfW SME Atlas 2018  (PDF, 1 MB, non-accessible)

Focus on Economics

Germany's labour productivity growth has weakened noticeably. The average annual growth rate has been a mere 1 % since 2005 – compared with 2 % between 1991 and 2004. A breakdown of overall economic productivity shows that a shift in employment towards industries with below-average productivity levels and even declining productivity over time has contributed significantly to this decline. Intra-sectoral productivity boosts have also been much weaker since 2005 – both in manufacturing and services.

PDF for download:

Weak productivity: different causes require different therapies  (PDF, 152 KB, non-accessible)

SMEs are growing increasingly sceptical as to whether the very high current pace of economic activity can be maintained in the long term. While situation assessments in February rose to a new high, business expectations fell for the fourth consecutive month. Given the increasingly higher levels of aggregate capacity utilisation, the growth rate is likely to slow down moderately in the course of the year.

PDF for download:

KfW-ifo SME Barometer February 2018  (PDF, 105 KB, non-accessible)

Germany’s upswing remains on track. KfW Research confirms its GDP growth forecast of 2.5 % for 2018 and issues a solid preliminary forecast of 1.9 % growth for 2019. Serious risks of overheating are absent amid generally expected restrained wage and price growth. Increasingly scarce production capacities and the interest rate reversal, however, will cause the currently very high growth dynamic to level off in future.

PDF for download:

KfW Business Cycle Compass Germany February 2018  (PDF, 55 KB, non-accessible)

German SMEs started the year with enthusiasm and again on a slightly more positive note than large enterprises. The improved SME business climate is primarily due to their significantly more positive assessment of the current business situation. The cyclical momentum should remain strong not just throughout the winter but the outlook for the further course of 2018 is also very good.

PDF for download:

KfW-ifo SME Barometer January 2018  (PDF, 93 KB, non-accessible)

Sentiment in the German private equity market fell slightly in the final quarter of 2017. At 66.1 balance points, the business climate index of the German Private Equity Barometer ended the year only 4.0 points below its third-quarter record level. The minor drop was evident among both early-stage and later-stage investors. But despite the decline, the business climate remained very good in both market segments. 2017 was a year of superlatives in the German private equity market. The assessments of the business climate, fundraising climate, exit conditions and promotional environment have never been better. The record year thus came exactly ten years after the outbreak of the financial crisis. On average for the year, sentiment in 2017 was clearly better than in the German Private Equity Barometer’s previously best year 2007. The downside of the good development, however, were higher entry prices for investments – a challenge investors will probably have to deal with for some time to come.

PDF for download:

German Private Equity Barometer 4th Quarter 2017  (PDF, 105 KB, non-accessible)

After shattering one record after another throughout 2017, confidence levels among Germany’s small and medium-sized enterprises slipped slightly towards the end of the year. But that does nothing to alter the positive cyclical outlook. We expect another year of strong real growth: 2.5 % for 2018 after 2.3 % in 2017.

PDF for download:

KfW-ifo SME Barometer December 2017  (PDF, 130 KB, non-accessible)

Business confidence in Germany is growing in leaps and bounds. Both small and medium-sized enterprises and large enterprises beat the previous month’s record levels again in November. SMEs raised the bar for all-time high confidence for the sixth time in a row this year, underscoring Germany’s very strong cyclical position.

PDF for download:

KfW-ifo SME Barometer November 2017  (PDF, 125 KB, non-accessible)

The German economy is stepping it up a notch. KfW Research expects real growth of 2.5 % for 2018 and 2.3 % in the year now ending (previous forecast: 2.0 % for each year). Despite the strong upturn, wages and prices show no signs that the economy might run hot any time soon. The difficult work of forming a new government is hardly likely to affect the business cycle in the short term.

PDF for download:

The Business Cycle Compass Germany November 2017  (PDF, 91 KB, non-accessible)

Sentiment on the German private equity market improved once again in the third quarter. The business climate index of the German Private Equity Barometer increased by 4.9 points to 70.2 balance points in the third quarter of 2017, clearly beating its own record of the second quarter. The trend shows unprecedented confidence in the early-stage segment of the private equity market. The business climate in the later-stage segment remained very good and virtually unchanged. The renewed improvement in the business climate has generally come about on the back of a much better exit environment. Investors’ assessment of exit possibilities noticeably exceeded the previous record high of the first quarter of 2015.

PDF for download:

German Private Equity Barometer 3rd quarter 2017  (PDF, 105 KB, non-accessible)

Germany’s economic engine is humming along and the mood is literally euphoric. While the business climate among large enterprises reached a record level in October for the first time in nearly seven years, SMEs have raised the bar for all-time high confidence for the fifth time this year. Germany is likely to have grown at a similarly strong pace in the third quarter of 2017 as in the two preceding quarters (0.6 or 0.7 per cent on the previous quarter).

PDF for download:

KfW-ifo SME Barometer October 2017  (PDF, 124 KB, non-accessible)

Economics in Brief

Germany has a strong position in international trade. Its exports are heavily focused on individual groups of products, especially cars and car parts. International demand is therefore important for the automotive industry, which also imports extensive inputs from abroad.

PDF for download:

German exports are dominated by automobiles  (PDF, 78 KB, non-accessible)

Germany’s SMEs continue to break records – sectoral transformation poses new challenge

German SMEs presented themselves in top shape in 2016. As employers they are more important than ever, and their workforce has reached an unprecedented level. Sectoral structural transformation is making a clear imprint on SMEs, with most employment growth taking place in service industries in the past years. Germany’s transition to a service society, however, is slowing down productivity advances in the SME sector. Nevertheless, enterprises are growing at a fast pace, returns and profitability are good, and equity ratios are on record levels. Investments are also growing strongly again and the favourable financing environment has nurtured this trend. The signs remain promising. Strong domestic demand promises sustained high growth, a new employment record is foreseeable, and signs of stronger growth in corporate investment are emerging.

PDF for download:

KfW SME Panel 2017  (PDF, 877 KB, non-accessible)

Focus on Economics

German banks have recently stepped up the rate of branch closures. The have closed around one fourth of all branches since the turn of the millennium: 10,200 locations across the country, 680 branches per year. That puts Germany's branch density in mid-range compared with the rest of Europe. The trend towards consolidation will likely continue. Importantly, digitisation has firmed its grip on the banking industry. Innovative technologies, new competitors and new customer demands generate pressures to make adjustments. Banks are responding to this. If the rate of closures continues, a good half of the branches that existed at the turn of the millennium will be closed by the year 2035.

PDF for download:

Branch closures: German banks are shifting up a gear amid Herculean challenge of digitisation  (PDF, 583 KB, non-accessible)

Germany's SME engine is running at full speed. After taking a breather in the previous month, business confidence was back to chasing records in September. It is the fourth time the record has been broken this year. Both situation assessments and business expectations contribute to the new all-time high. In other words, it’s all systems go for Germany's continuing upswing.

PDF for download:

KfW-ifo SME Barometer September 2017  (PDF, 123 KB, non-accessible)

The steep rise of SME business confidence – with three new all-time highs in the past four months – has reached a plateau. Both components of the business sentiment indicator dipped marginally in August. But that does nothing to change the strong cyclical outlook for Germany.

PDF for download:

KfW-ifo SME Barometer August 2017  (PDF, 132 KB, non-accessible)

The German economy continues to grow strongly. KfW Research has revised its overall forecast for 2017 and 2018 to 2.0 % for both years (previous forecast: 1.6 % each). That would make 2018 the fifth consecutive year in which the rate of Germany's growth exceeds the long-term trend. Rising aggregate capacity utilisation levels are increasingly spurring corporate investment.

PDF for download:

KfW Business Cycle Compass August 2017  (PDF, 89 KB, non-accessible)

Economics in Brief

The importance of emerging economies for Germany's foreign trade has grown dramatically since the mid-1990s. For one thing, these upper-middle income countries have become more numerous, and for another, trade on a per-country basis has intensified. This effect is due in part, but not exclusively, to China's integration into world trade. The group of high-income countries, however, remains by far the most important market for Germany's foreign trade.

PDF for download:

Emerging markets have become more important for Germany's foreign trade  (PDF, 81 KB, non-accessible)

The German private equity market continued to smash records in early summer, with sentiment reaching a new high. The business climate index of the German Private Equity Barometer rose by 3.4 points to 65.2 balance points in the second quarter of 2017. The submarkets trended in opposite directions yet again. Confidence among early-stage investors fell slightly, while later-stage investors were more confident again. The only remaining stumbling block are the high company valuations and the associated high entry prices. Both early and later-stage investors have never been more dissatisfied with them. Start-ups initiate negotiations with investors with the corresponding degree of confidence, and SMEs are also aware of their quality. Entry prices reflect that.

PDF for download:

German Private Equity Barometer 2nd quarter 2017  (PDF, 65 KB, non-accessible)

Focus on Economics

Germany's current account surplus has been very high for a long time and has come under increasing criticism from international institutions. US President Donald Trump's massive criticism has now raised the conflict to a new level. The threat of imposing higher US import tariffs on German products, especially cars, is placing a key success factor of the German economy in acute jeopardy. So it is high time to look for ways of moving Germany out of the spotlight.

PDF for download:

Current account balance: reduce surplus, make Germany stronger  (PDF, 252 KB, non-accessible)

The upward trend in the business sentiment of small and medium-sized enterprises seems to know no limits. The new record high in business climate – the third one within only four months – is, however, only based on an even more optimistic outlook. Large enterprises have also joined the party celebrating the upbeat sentiment. Although uncertainties remain, the economic growth prospects are brightening further.

PDF for download:

KfW-ifo SME Barometer July 2017  (PDF, 130 KB, non-accessible)

Focus on Economics

Thanks to the ECB's expansionary monetary policy, the euro states have realised considerable funding advantages since Draghi’s ‘whatever it takes’ speech exactly five years ago. Italy alone has since then avoided additional funding costs in excess of EUR 100 billion. An interest rate turnaround is now on the cards, and Italy in particular has to do more to prepare for the return of steadily rising interest rates.

PDF-Download:

Monetary policy has reduced fiscal pressure in euro area – but interest rate turnaround is coming  (PDF, 73 KB, non-accessible)

Business Survey 2017

For the 16th time, KfW Group in cooperation with 18 trade associations has conducted a survey on bank behaviour and the financing situation of businesses.

The most important results:

• Financing climate for businesses worsens slightly, but remains positive in historical comparison
• Young and small businesses increasingly report greater difficulties accessing credit
• Ratings have improved again on a broad front
• Bank loans remain the most important source of funding

PDF for download:

Business Survey 2017 – Funding situation of businesses is moving sideways – first signs of a change in trend? (Summary)  (PDF, 20 KB, non-accessible)

Confidence on the executive floors of small and medium-sized enterprises is booming. Business climate in Germany climbed to new post-unification record highs in June. The hard monthly cyclical indicators, however, so far have not been able to impress with top results. All in all, we expect quarterly GDP to have grown at roughly the same rate in the spring quarter as in the first quarter. Our ‘merely’ good cyclical outlook for Germany thus remains on track.

PDF for download:

KfW-ifo SME Barometer June 2017  (PDF, 188 KB, non-accessible)

The mood on the executive floors of Germany's small and medium-sized enterprises remains excellent, even if business sentiment in May fell just short of the previous month's all-time high. The drop in confidence was very largely due to a special effect in the retail and wholesale sector that had no impact on the fundamental upward trend. The economy continues to run smoothly.

PDF for download:

KfW-ifo SME Barometer May 2017  (PDF, 79 KB, non-accessible)

The German economy grew by 0.6 % in the first quarter, a convincing start to the year 2017. High business confidence points to real growth momentum of similar magnitude for the second quarter. KfW Research has revised its overall forecast for 2017 and 2018 to 1.6 % for both years (previous forecast: 1.4 % each). That would mean at least nine years of uninterrupted growth for Germany. Only one upswing since the 1970s lasted longer. The main reason for the upward revision to the forecast is that the political risks in Europe have faded since the elections in the Netherlands and France.

PDF for download:

KfW Business Cycle Compass May 2017  (PDF, 57 KB, non-accessible)

German private equity investors started the year with great confidence. In the first quarter of 2017 the business climate index of the German Private Equity Barometer stood almost unchanged at 61.8 balance points (-0.2 points). The indicator for the current business situation climbed moderately by 0.5 points to 65.1 balance points, while business expectations fell slightly by 1.0 points to 58.6 balance points. In the two sub-markets the mood among early-stage investors improved again but is now more settled among later-stage investors. The main factors of the market environment point to a successful VC year 2017.

PDF for download:

German Private Equity Barometer 1st quarter 2017  (PDF, 76 KB, non-accessible)

Economics in Brief

Inflation in Germany has increased noticeably since autumn, driven in part by food prices. Should we be concerned? We have simulated the food price trend for the rest of the year 2017 and have arrived at a definitive answer.

PDF for download:

Food inflation: a brief intermezzo  (PDF, 99 KB, non-accessible)

The German economy is steaming ahead into spring. Business sentiment among small and medium-sized enterprises jumped to a new all-time high in April. Very strong increases in business situation assessments as well as expectations contributed to the new record level. Large enterprises are also more upbeat, but only because of their much more positive assessments of current business. The excellent business situation in both enterprise size classes gives reason to hope for dynamic and broad-based growth in the second quarter as well.

PDF for download:

KfW-ifo SME Barometer April 2017  (PDF, 75 KB, non-accessible)

Focus on Economics

Compared with the pre-crisis level of 2008, business investment has developed at a much slower pace than GDP. Last year enterprises invested EUR 370 billion in capital stock, or a mere 11.8 % of GDP, which was only marginally more than in 2009, the year of deep recession. In 2008 the investment-to-GDP ratio was still 13.3 %. In purely arithmetic terms, the decline of 1.5 percentage points represents an investment gap of some EUR 45 billion. So how concerned should we be about this?

PDF for download:

Business investment: waiting for Godot?  (PDF, 77 KB, non-accessible)

KfW SME Innovation Report 2016

Innovationen is concentraded in increasingly fewer enterprises

The share of innovative SMEs in Germany has dropped sharply to 22 %, the lowest level since 2004. Innovation expenditure in the SME sector has remained steady in the past years, however. Innovation efforts are thus concentrated in fewer and fewer enterprises. Several factors have contributed to the long-term trend towards fewer innovators. These include reduced start-up activity, the demographic trend and weak business expectations as well as uncertainty resulting from political and economic imponderables.

PDF-Download:

KfW SME Innovation Report 2016  (PDF, 2 MB, non-accessible)

Small and medium-sized enterprises are confident going into spring. Their business climate consolidated in March on a high level, signalling ongoing strong economic momentum. Large enterprises’ overall business confidence, by contrast, rose strongly, closing the gap in sentiment to SMEs that had opened up since the turn of the year. The export-dependent large manufacturers had a major share in this. We see this as confirmation that the global economy is picking up while businesses’ perceptions of the numerous political risks are fading.

PDF for download:

KfW-ifo SME Barometer March 2017  (PDF, 76 KB, non-accessible)

Focus on Economics

Migrants have an above-average entrepreneurial drive. Each year, some 170,000 start a business of their own in Germany. The flipside of the higher rate of entrepreneurship among migrants is a slightly higher rate of failure. Nevertheless, migrants make a larger footprint on the start-up landscape than the average. Not only do they start businesses more often, but also on a larger scale. Migrants invest more working time in their start-up projects, are more likely to start off in a team, and employ more workers.

PDF for download:

Migrants have more and larger start-ups: more hours a week, more employees  (PDF, 76 KB, non-accessible)

Economics in Brief

If the British opt for a "hard Brexit", trade between the UK and Germany will in future be subject to the WTO rules that apply to all other members of the World Trade Organisation as well. That could mean a 10 % tariff on German cars that are being traded freely today, for example. For many of Germany's classic export industries, however, lower tariffs would tend to apply, such as 0 to 4 % on machinery and equipment products. Germany's industries would be capable of handling a hard Brexit – even if some companies with a focus on business in the UK would definitely suffer, and even if the country is Germany's third biggest export market. But a hard Brexit would hit the UK economy much harder: among other things, the country is dependent on imports because of its low industrial capacity.

PDF for download:

At what level might tariffs be set after a “hard Brexit”?  (PDF, 62 KB, non-accessible)

The sentiment gap between SMEs and large-scale enterprises is widening again. While large businesses are increasingly concerned over international political risks, the still positive hard economic data have generated much more confidence on the executive floors of small and medium-sized enterprises. The German economy is set to grow strongly in the first quarter of 2017. The consistently very good business situation assessments are a particular indication of this trend.

PDF for download:

KfW-ifo SME Barometer February 2017  (PDF, 134 KB, non-accessible)

Focus on Economics

Inflation in Germany has increased noticeably. Nevertheless, we do not expect the European Central Bank to respond to this change. After all, the rise in annual inflation is mostly temporary. Besides, inflation in the remaining euro area is much lower than in Germany. And the ECB targets its monetary policy – which also brings many advantages for Germany – only at the euro area as a whole.

PDF for download:

ECB policy remains unchanged – despite temporarily higher inflation  (PDF, 68 KB, non-accessible)

KfW Research now expects real growth of 1.4 % for 2017 (previous forecast: 1.3 %). The initial growth forecast for Germany in 2018 is 1.4 % as well. That would make the recent upswing phase one of the longest since the 1970s. However, forecast uncertainty is high. Developments can deteriorate significantly if important trading partners adopt protectionist plans, or if Europe destabilises further. If these risks dissipate, however, growth may turn out significantly higher once the investment backlog is eliminated.

PDF for download:

KfW Business Cycle Compass February 2017  (PDF, 110 KB, non-accessible)

In the final quarter of 2016 the business climate in the German private equity market reached the highest level since 2007. The business climate index of the German Private Equity Barometer rose 2.5 points to 62.1 balance points. The indicator for the current business situation climbed 4.4 points to 64.6 balance points, while business expectations increased by 0.6 points to 59.5 balance points. Early-stage and later-stage investors rate the current business climate differently, however. While later-stage investors' sentiment was at record high the end of the year, the mood among early-stage investors remained good but dipped again.

PDF for download:

German Private Equity Barometer 4th quarter 2016  (PDF, 105 KB, non-accessible)

Fears of rising protectionism in the global economy brought down confidence among Germany's globally interconnected businesses at the start of the year. In contrast with large enterprises, however, SME business confidence has dropped only minimally. Germany's recovery is not under threat in the short term. What will happen to the economy after what we expect to be a good first quarter 2017, however, is becoming increasingly unclear.

PDF for download:

KfW-ifo SME Barometer January 2017  (PDF, 78 KB, non-accessible)

Focus on Economics

In January, Germany's inflation rate climbed to almost 2 % for the first time since mid-2013. The rise was mostly due to the development of the crude oil price. And as the upward trend of the oil price is not expected to continue, the inflation rate will soon drop again. Nevertheless, it can be stated that, all in all, German inflation is in a process of normalisation. At the same time, the ECB will not respond to this because it does not manage inflation of a single country but of the euro area as a whole. There, prices are still rising much more slowly than in Germany.

PDF for download:

Inflation in Germany rises only briefly above two per cent  (PDF, 75 KB, non-accessible)

Focus on Economics

Germany is particularly dependent on foreign labour potential because of its unfavourable demographics. Today, one in ten employees subject to social security contributions have a foreign passport. The German economy thus benefits heavily from the EU’s free movement of workers, but labour migration from outside the ageing EU states is becoming increasingly important. Refugees can also contribute to offsetting looming labour market constraints if they integrate successfully. In the past five years, SMEs have hired some 250,000 refugees – although rarely as skilled workers and primarily as temporary employees, interns and apprentices.

PDF for download:

Foreign workers in German SMEs: a strong plea for free labour markets  (PDF, 90 KB, non-accessible)

In Germany, new lending to enterprises and self-employed persons grew by 1.0 % year-on-year in the third quarter of 2016. That was the first increase since the spring of 2015. This is all the more pleasing as the Brexit vote had to be digested over the summer months. Looking ahead, the high level of business confidence in Germany may potentially bolster lending. However, muted investment activity and political uncertainties on both sides of the Atlantic have a dampening effect.

PDF for download:

KfW Credit Market Outlook December 2016  (PDF, 58 KB, non-accessible)

The year is coming to a close and indicators once again confirm the good shape of Germany's economy. Unexpected events of 2016 included the Brexit vote in June, the US election in November, the failure of Italy's constitutional referendum and the resignation of its prime minister in December, and the increasingly difficult situation in Turkey and the Middle East. But none of them were able to inflict any lasting damage on the positive trend in sentiment among Germany's SMEs. In 2017 Germany's upswing will enter its fourth year in a difficult environment.

PDF for download:

KfW-ifo SME Barometer December 2016  (PDF, 123 KB, non-accessible)

Economics in Brief

Germany's SMEs in particular have much to gain from the free movement of workers in the EU as almost 6 % of their employees are non-German EU citizens. The current success of anti-immigration parties in Europe is therefore unsettling SMEs that conduct international business. In the latest special survey conducted by the KfW SME Panel, these firms stressed the great importance of labour mobility within the EU. Under the impression of the looming Brexit, it is particularly the SMEs with business operations in the United Kingdom that call for open labour markets in Europe.

PDF for download:

Germany's SMEs after US election and before Brexit: keep markets open!  (PDF, 42 KB, non-accessible)

Economics in Brief

The widening of global current account imbalances observed since 2013 is primarily the result of market-based exchange rate movements and the big drop in commodity prices. Even if that fails to grow into a new global economic crisis, current account rebalancing must remain on the agenda. Germany is heading for a record surplus in 2016. More corporate and public investment could help to reduce it.

PDF for download:

The current external imbalances from a global and from a German perspective  (PDF, 46 KB, non-accessible)

The unexpected election of Donald Trump as the 45^th president of the USA, who was successful not least because of his protectionist ideas, is weighing on sentiment among German exporters. But initial reactions show that Germany's wider business community is only moderately impressed. After two very strong increases in the preceding months, business sentiment among German SMEs declined slightly in November. Their expectations for the future, in particular, are somewhat more subdued than in the month before.

PDF for download:

KfW-ifo SME Barometer November 2016  (PDF, 76 KB, non-accessible)

The KfW External Trade Barometer for the fourth quarter of 2016 shows below-average foreign trade momentum. Should only underlying factors play a role, trade activity is likely to pick up in the coming four quarters. The stable economic situation in Germany will ensure a healthy demand for imports. Prospects for the global economy are getting brighter and this will foster exports. At the same time however, the risks of an environment unfriendly to trade have increased.

PDF for download:

KfW External Trade Barometer 4th Quarter 2016  (PDF, 58 KB, non-accessible)

KfW Research confirms its growth forecast of +1.8 % for 2016 and +1.3 % for 2017. Around two thirds of the slowdown next year will be caused by variations in the number of working days alone. The underlying economic momentum will at least match the potential rate in 2017 as well, so Germany will stay on a good path. After the Brexit and the US elections, next year countries in core Europe will hold important elections that may also reveal a growing preference for isolationism and protectionism. As the outcomes are still completely unclear, the outlook for 2017 resembles a voyage into an area of dense fog where the ship can easily drift off course.

PDF for download:

KfW Business Cycle Compass November 2016  (PDF, 59 KB, non-accessible)

The German economy does not even show a shadow of a trace of autumn doldrums. Business confidence among SMEs and large enterprises rose strongly in October, primarily on the back of another significant increase in enterprises' expectations. The rapid sentiment improvement in industry is particularly good news because manufacturing traditionally sets the pace of the German economy. Employment expectations have reached multi-year highs. At the same time, enterprises are increasingly confident of achieving higher sales prices again.

PDF for download:

KfW-ifo SME Barometer October 2016  (PDF, 77 KB, non-accessible)

The August slump in SME business sentiment is already a thing of the past. SMEs have regained a level of confidence unsurpassed in more than two years. It is fuelled by both the noticeably more favourable assessment of ongoing business and the considerably more optimistic view of the future. Entrepreneurs' fear of immediate drastic consequences from the Brexit vote appears to have vanished. This is even more conspicuous in the more internationally operating large enterprises, were confidence levels have risen even more strongly.

PDF for download:

KfW-ifo SME Barometer September 2016  (PDF, 103 KB, non-accessible)

Business sentiment is stabilising again

Sentiment on the German private equity market stabilised again in early summer. After the slump at the start of the year the business climate index of the German Private Equity Barometer of KfW and BVK rose slightly by 2.2 points to 47.6 balance points in the second quarter of 2016. Unlike the preceding quarter, market sentiment in the early-stage and later-stage segment is currently moving in opposite directions. After the business climate in the early-stage segment fell from its record high to below its historic mean within half a year, it recovered significantly in early summer. Market sentiment in the later-stage segment, in turn, has fallen slightly.

PDF for download:

German Private Equity Barometer: 2nd Quarter 2016  (PDF, 86 KB, non-accessible)

In August small and medium-sized enterprises were suddenly hit with the summer blues, after neither the Brexit vote nor the failed coup attempt in Turkey were able to affect their mood the month before. The gloomier sentiment, however, is exclusively due to their significantly less favourable assessment of current business. Their expectations, however, reached their highest level this year. Amid the increased uncertainties about external trade, this is a reassuring sign. It underscores that the German economy can continue to rely on domestic demand. Large firms, by contrast, are much less optimistic about the future.

PDF for download:

KfW-ifo SME Barometer August 2016  (PDF, 107 KB, non-accessible)

The KfW External Trade Barometer for the third quarter of 2016 indicates an average foreign trade momentum. The indicator will not be able to maintain this level over the next four quarters. The subdued external environment is affecting exports, which is also reducing the momentum of imports as companies' business expectations have become less optimistic.

PDF for download:

KfW External Trade Barometer 3rd Quarter 2016  (PDF, 80 KB, non-accessible)

KfW Research lifts its growth forecast for 2016 to 1.8 % although exports will suffer from the fallout of the Brexit vote in the second half of the year.

However, the growth slowdown in the second quarter turned out more moderate than expected. After the strong start to the year gross domestic product grew faster than the long-term average from April to June as well (+0.4 % on the previous quarter).

Employees can look forward to about three more days off work next year. That is the main reason why KfW Research expects economic growth to drop to only 1.3 % in 2017. The good news is that the underlying momentum, which is backed by an intact domestic economy, will pick up again after the immediate impact of the Brexit vote has subsided.

PDF for download:

KfW Business Cycle Compass August 2016  (PDF, 56 KB, non-accessible)

Focus on Economics

In 2014 a good half of German enterprises with an annual turnover of more than EUR 500 million invested abroad, each expending EUR 125 million on average. Nine in ten enterprises regard foreign investment as complementary and not as a substitute for their activities at home. This is consistent with the fact that they have invested more than the same amount at home in addition to their foreign investment. Companies intend to keep their current level roughly constant, with 52 % planning to invest outside Germany in the current three-year period 2015 to 2017 as well, each with average expenditure of EUR 340 million across the entire period. Expansion remains by far the most important motive for foreign investment.

PDF for download:

Large German firms invest roughly the same amounts at home and abroad  (PDF, 136 KB, non-accessible)

Fears of a collapse in sentiment as a result of the Brexit vote appear unfounded, at least outside the United Kingdom. In July, the business climate of small and medium-sized enterprises reached its highest point since last November. German SMEs are reacting quite calmly to the Brexit shock, at least for now. Furthermore, neither the attempted Turkish coup and its aftermath nor the renewed terrorism in Europe appear to have had much impact. Germany’s growth rate in 2016 and 2017 could come close to its potential rate.

PDF for download:

KfW-ifo SME Barometer July 2016  (PDF, 99 KB, non-accessible)

German firms took a fairly calm view of the Brexit referendum and the associated economic risks ahead of the vote. The business climate of small and medium enterprises even rose to a new year's high in June thanks to improved expectations. However, we think this positive outlook is hardly worth the paper it is written on following the surprise decision by British voters to leave the EU. The coming months will be characterised by great uncertainty and a weaker economy – particularly in the UK but also in the rest of Europe. However, June's upbeat mood at least tells us one thing: German companies are well equipped for uncertain times ahead.

PDF for download:

KfW-ifo SME Barometer June 2016  (PDF, 101 KB, non-accessible)

KfW Research has lowered its German economic growth forecast for 2016 to 1.5 % (previously 1.7 %) and for 2017 to 1.2 % (previously 1.8 %). Uncertainty and weaker export momentum dampen business investment. Employment, consumption and residential construction, on the other hand, continue to grow appreciably. The eurozone is expected to grow by only 1.3 % in 2016 and 1.1 % in 2017 (previous forecasts: 1.6 % and 1.8 %). The largest negative impact is on the UK itself: the economy will slow considerably in the second half of the year. The longer the timetable and goals of Brexit remain unclear, the worse it is for the UK economy.

PDF for download:

KfW Business Cycle Compass July 2016 – Brexit Update  (PDF, 127 KB, non-accessible)

KfW’s estimates indicate that new lending to businesses and self-employed persons in Germany remained in decline in the first quarter of 2016. On a positive note, the negative momentum has stabilised. Also, there was a markedly stronger investment activity between January and March, which raises confidence for the corporate lending market. But the higher uncertainty resulting from the Brexit vote is now likely to delay the hoped-for recovery in lending until around the end of the year.

PDF for download:

KfW Credit Market Outlook June 2016  (PDF, 75 KB, non-accessible)

Focus on Economics

One in three start-up entrepreneurs takes over or acquires an active participation in an existing business. As entrepreneurs are not immune to demographic change either, increasing numbers of SMEs are ready to change ownership. Takeover entrepreneurs therefore play an important role in preserving the Mittelstand, the backbone of the German economy. Most business transfers are still based on family succession. Here, more and more daughters appear to the taking over their fathers' companies. The share of female takeover entrepreneurs has more than doubled in the past years.

PDF for download:

Transfer-planning entrepreneurs outnumber takeover entrepreneurs 3 to 1  (PDF, 95 KB, non-accessible)

Focus on Economics

Business succession is increasingly turning into a key challenge for SMEs' competitiveness. Some 620,000 small and medium-sized entrepreneurs plan to transfer or sell their business by the year 2018. However, a fundamental demographic bottleneck is emerging. There are not enough potential successors for the growing numbers of older entrepreneurs. Besides, many entrepreneurs wait very long before they think about their succession. One in three business owners who plan to retire within three years still has no concrete plans.

PDF for download:

Ageing boosts SMEs’ need for successors – 620,000 business transitions by 2018  (PDF, 92 KB, non-accessible)

Business Survey

This was the fiveteenth occasion on which KfW Group, in collaboration with 21 business associations, conducted a company survey on the subject of bank behaviour and financing.

The most important results:

• The financing climate is steady at an all-time high. Low interest rates, enterprises' enhanced self-financing capacity and good business performance have contributed

• Small and young enterprises, however, still face major constraints in accessing credit

• Credit remains difficult to obtain for innovation, digitalisation and international projects

PDF for download:

Business Survey 2016 – Summary  (PDF, 57 KB, non-accessible)

The KfW External Trade Barometer for the 2nd quarter of 2016 shows that Germany's external trade activity is expected to remain stable this year but persistently below its long-term level. Imports will again exhibit stronger momentum than exports. However, the export weakness should be overcome in the course of the year.

PDF for download:

KfW External Trade Barometer 2nd Quarter 2016  (PDF, 138 KB, non-accessible)

Market sentiment drops sharply

Sentiment on the German private equity market cooled significantly at the beginning of the year. German Private Equity Barometer's business climate indicator of KfW and BVK fell sharply to 45.4 balance points in the first quarter. The business climate in the later-stage segment remains very good despite the decline but slipped below its long-term average in the early-stage segment. Equity investors are more pessimistic about their current business situation and their expectations for the future. Based on a general assessment of the underlying conditions, the current market sentiment is worse than should be expected.

PDF for download:

German Private Equity Barometer: 1st Quarter 2016  (PDF, 102 KB, non-accessible)

Labour market greatly lowers appetite for self-employment, innovative founders hold their own

The number of business founders in Germany fell significantly by 152,000 (-17 %) to 763,000 in the year 2015. The strong labour market led to an above-average decline of 28 % in the number of necessity founders. As necessity founders are more frequently full-timers, their lower number significantly impacted on the number of full-time founders. Economically important start-up groups held their own amid the strong decline. The number of opportunity founders dropped less sharply, by 15 %, while the number of innovative founders even saw a modest rise of 6 %. Digital founders were surveyed for the first time. They make up a good one fifth of start-up activity. They compete more often on international markets than other business founders, which makes them a driving force that strengthens Germany’s competitiveness.

PDF-Download:

KfW-Start-up Monitor 2016  (PDF, 636 KB, non-accessible)

Focus on Economics

Older consumers want different products and services – and their numbers are growing. Demographic factors such as population ageing can be important to boost consumption demand and growth. Roughly one fifth of today’s restrained growth in turnover in the SME sector can be attributed to demographic changes in demand. This is the finding of a special analysis conducted with the KfW SME Panel. There are also signs of investment stimuli because enterprises are under pressure to respond to changing sales markets.

PDF for download:

Demographic change bolsters private consumption and SME growth  (PDF, 583 KB, non-accessible)

The German economy will grow 1.7 % in 2016 and 1.8 % in 2017. KfW Research thus reaffirms its economic forecast, which is optimistic particularly with a view to the year ahead. After a strong first quarter 2016 (+0.7 % on the previous quarter), the economy is taking a breather in the second quarter, but momentum will pick up again noticeably. Domestic demand remains brisk while the external environment is gradually improving. Exports and corporate investments are on the rise. Germany's real growth could turn out lower if the United Kingdom decides to leave the EU or the global economy hits an unexpected roadblock.

PDF for download:

KfW Business Cycle Compass Germany May 2016  (PDF, 93 KB, non-accessible)

Focus on Economics

Since Draghi’s ‘whatever-it-takes’ speech in the summer of 2012, the yields on government bonds of the four biggest euro area economies have dropped significantly. The ECB’s OMT programme has brought about a normalisation on the sovereign bond market where excesses occurred at the height of the debt crisis. KfW Research estimates that the ECB thus protected southern European states in particular from billions of euros in increased funding costs. If the yields on Spanish and Italian government bonds, for example, had remained on their high level of 2012, their governments would have been forced to adopt additional budget corrections that would have compromised the economic recovery. With its expansionary monetary policy the ECB bought the states time, but this time is limited and should be used wisely to implement structural reforms.

PDF for download:

ECB policy has saved euro states from severe economic hardship since 2012  (PDF, 111 KB, non-accessible)

Economic risks, particularly the imminent Brexit referendum, do not appear to influence small and medium-sized enterprises enough to spoil their mood. On the contrary, positive sentiment among SMEs is literally flourishing – in line with the season. Both components of the business climate are clearly up and situation assessments have even climbed to a two-year high. Large enterprises, on the other hand, remain sceptical for the time being. Their sentiment generally remains significantly more subdued than that of SMEs.

PDF for download:

KfW-ifo SME Barometer May 2016  (PDF, 648 KB, non-accessible)

Germany's small and medium-sized enterprises are uncertain about where the economy is heading. While domestic demand is reliable, considerable risks remain in the external environment in particular, with the exception of sporadic positive developments. In the absence of a clear direction, the fragile recovery of the business climate stagnated again in April. Businesses remain stuck in the sober mood into which they had sunk after the turn of the year. Optimists and pessimists cancel each other out almost perfectly.

PDF for download:

KfW-ifo SME Barometer April 2016  (PDF, 122 KB, non-accessible)

Focus on Economics

In the 2020s at the latest, Germany’s growth potential will be under considerable downward pressure from the ageing and shrinking of its population. Only a broad economic-policy strategy can effectively stop the decline. However, its success will not only depend on considerable efforts in integrating refugees. Implementing ambitious general economic policy measures for increasing labour market participation, investment and productivity will also be crucial.

PDF for download:

Germany’s demographic trap – integrating refugees is only part of the solution  (PDF, 148 KB, non-accessible)

KfW Research is launching a new indicator of Germany's external trade activity – the KfW External Trade Barometer. The first edition demonstrates that Germany's exports may pick up somewhat later in the year together with the global economy, while the momentum of imports will follow the slightly easing domestic demand. The external trade momentum has hovered very close to its long-term level since the end of 2013 and will probably continue its sideways movement this year as well.

PDF for download:

KfW External Trade Barometer 1st Quarter 2016  (PDF, 97 KB, non-accessible)

Economic in Brief

Economic policy debate places considerable focus on the impacts of the exchange rate and its movements on a country's exports and imports. Germany's exports grow with a real depreciation of the euro but the correlation with demand from abroad is even closer. German import growth, in turn, hardly responds in any systematic way to chances of the real effective exchange rate but are dependent on domestic demand.

PDF for download:

Germany's external trade – driven by demand or by the exchange rate?  (PDF, 143 KB, non-accessible)

Immigration from EU states and countries affected by civil war, together with increased numbers of students, has driven the demand for housing in sought-after regions sky high. Housing has become particularly expensive and difficult to find in major cities and their surrounding areas. At 3 %, investment in housing construction is therefore significantly higher in 2016 than it was in 2015 (1.3 %).

Estimates place the number of new housing units that will be required over the next few years at between 350,000 and 400,000. With roughly 300,000 completions in 2016, new-build housing construction is expected to continue to lag behind demand this year. In 2017, however, it is likely that sufficient housing units will have been completed to satisfy demand. For this to happen, however, sufficient building land has to be made available in growing cities and both the federal government and state governments have to introduce their planned special write-downs this year.

In sought-after housing markets property prices once again rose more rapidly than rents in 2015. It appears that, with housing continuing to be in short supply, some investors are speculating that they will be able to hike rents even further, thus increasing the risk of regional property price bubbles. However, German banks are continuing to maintain high credit standards while the macro-prudential supervisory authorities prevent a nationwide property price bubble from developing in Germany.

PDF for download:

KfW Investment Barometer Germany March 2016  (PDF, 74 KB, non-accessible)

In time for the beginning of spring, German SMEs are breathing a sigh of relief – for now. The stabilisation of commodity prices has reduced their fear of a global downturn. Their concern over the many challenges Europe has yet to overcome appears to be fading slightly again as well. Overall, in March the SME business climate recovered nearly half the decline of the previous month. The rebound was carried by both situation assessments and expectations in nearly equal proportions. Germany's recovery should continue despite ongoing risks.

PDF for download:

KfW-ifo SME Barometer March 2016  (PDF, 121 KB, non-accessible)

The fear of a global downturn, fuelled by the severe financial market turmoil and the many unsolved issues in Europe – including concern over an end to the Schengen area and a possible Brexit – are now affecting sentiment in the small and medium-sized enterprise sector as well. Expectations declined by nearly two and a half times the usual monthly variation and have fallen below the long-term average for the first time since October 2014. However, it is too early to throw in the towel and join the ranks of economic pessimists.

PDF for download:

KfW-ifo SME Barometer February 2016  (PDF, 102 KB, non-accessible)

KfW revises its forecast for the expected real GDP growth in 2016 downward to 1.7 % (previous forecast +2.0 %), taking into account the sharp increase in uncertainty. GDP growth is expected to be 1.8 % in 2017 (initial forecast). Considerable working day effects mask the expected accelerating growth in the forecast period. Domestic demand remains solid, whereas the external outlook gradually improves. However, the main risks also lie in the European and international environment.

PDF for download:

KfW Business Cycle Compass Germany February 2016  (PDF, 76 KB, non-accessible)

KfW SME Innovation Report 2015

Germany's innovation performance remains low despite slight increase

The share of innovators among German SMEs recently increased slightly again to 29 %. Nevertheless, the proportion of innovators is still at the second lowest level since 2004. A recovery to the pre-financial crisis levels is still out of reach. External stimuli play an important role in producing innovations: 80 % of SMEs take innovative ideas on board from external sources. A good one fourth of enterprises collaborate with other enterprises or research institutes. Financing difficulties remain the number 1 barrier for innovations.

KfW SME Innovation Report 2015  (PDF, 2 MB, non-accessible)

Economics in Brief

In the wake of the financial and economic crisis, productivity growth levelled off significantly globally. The decline in Germany was sharper than in just under two-thirds of all OECD countries. Since 2008, annual labour productivity growth in Germany has only been 0.5 % after remaining fairly stable at 2.0 % for just over a quarter of a century, from 1980 to 2007. Nonetheless, this is not a major cause for concern. Why? You will find out in this One Pager.

PDF for download:

Weak productivity growth in Germany – is it a problem?  (PDF, 81 KB, non-accessible)

Business climate remains very positive

The business climate on the German private equity market was generally unchanged at the end of the year. The overall business climate index of the KfW and BVK German Private Equity Barometer remained at 59.8 balance points in the fourth quarter. Sentiment in the early-stage and later-stage segments, however, developed rather differently. Whilst the early-stage financiers massively corrected their business climate assessment downwards again following the sharp rise in business expectations in the previous quarter, the later-stage financiers’ sentiment rose considerably. The basic conditions remain positive, especially the fundraising climate, which reached an all-time high.

PDF for download:

German Private Equity Barometer: 4th Quarter 2015  (PDF, 153 KB, non-accessible)

German enterprises are unsettled by the unexpectedly intense global stock market turbulence after the turn of the year and by the unease which it expresses about China causing damage to the global economy. The more closely companies are connected to the global market, the more concerned they are. Despite the botched start to the year, we remain optimistic: 2016 will not be a lost year for the economy.

PDF for download:

KfW-ifo SME Barometer January 2016  (PDF, 129 KB, non-accessible)

In the third quarter, new lending to companies and self-employed professionals fell for the first time in 18 months. This was caused by the structural weakness of credit demand. Favourable lending terms alone are apparently not enough to induce companies to consistently borrow more. Given the excellent financial position of the German business sector, a stable upward trend in new lending cannot be expected until investment activity picks up on a broad and sustained basis.

PDF for download:

KfW Credit Market Outlook December 2015  (PDF, 37 KB, non-accessible)

Small and medium-sized enterprises start the New Year in a slightly subdued mood. However, the rather minor deterioration in business sentiment provides very little cause for concern with regard to the continuing recovery of the German economy. It will not jeopardise the upward trend that began more than a year ago. The main contributor to the latest downturn in SME business confidence was the retail sector. The very mild weather is likely to have ruined the Christmas trading period, keeping unwanted seasonal items such as winter coats or sturdy shoes in the shops.

PDF for download:

KfW-ifo SME Barometer December 2015  (PDF, 48 KB, non-accessible)

The economic outlook for 2016 is good. German SMEs are neither being put off by the German and European challenges of migratory pressure nor by the Paris terror attacks and are looking to the coming year with growing optimism. In November their business expectations improved, again confirming the upward trend that has now persisted for a good year. At the same time, SMEs are very satisfied with the way their businesses are running. We expect the German economy to grow by 2 per cent in 2016.

PDF for download:

KfW-ifo SME Barometer: November 2015  (PDF, 51 KB, non-accessible)

KfW Research expects real GDP growth of 2.0 % for 2016. For the soon ending year 2015 we expect real growth of 1.7 %. The domestic economy will stay on track and the external environment is forecast to improve in 2016, boosting exports and corporate investments. Consumption will remain the most important driver of growth in 2016 as well. The contribution of foreign trade is roughly neutral owing to relatively strong import growth. Risks lie primarily in the European and international environment.

PDF for download:

KfW Business Cycle Compass December 2015  (PDF, 31 KB, non-accessible)

Focus on Economics

The historic dimensions of the refugee numbers lead to organisational problems, acute capacity bottlenecks – and manageable fiscal costs. Over the long term, the influx of refugees requires definitive investments in the future in three key areas: Firstly in accommodation, secondly in schools and daycare. Thirdly, alongside these investments in infrastructure, investments must be made in the human capital of the refugees. Integration into the labour market can only take place with sufficient language proficiency and professional qualifications. This provides an opportunity for an ageing economy which is already reliant on a workforce from abroad.

PDF for download:

Influx of refugees to Germany requires investment in housing, schools and minds  (PDF, 167 KB, non-accessible)

At the beginning of the final quarter of 2015, the German economy is still robust as companies remain impervious to bad news such as the emissions manipulations at VW or the weakness of the emerging economies. The SME business climate rose in October, offsetting the decline in the month before. The last time sentiment was better was one and a half years ago. Both climate components are pointing upwards. Overall, we assume that the German economy grew quite reasonably in the third quarter and that this pace will continue in the final quarter.

PDF for download:

KfW-ifo SME Barometer October 2015  (PDF, 48 KB, non-accessible)

KfW SME Panel 2015

Growing optimism is overcoming weak investment trend

SMEs put an end to cautious investment in 2014 with trust in a sustainable upturn in Germany and Europe boosting enterprises’ confidence. This is confirmed by the KfW SME Panel 2015. The increase in investment is considerable. Loan demand is increasing – proof that monetary policy is making an impact. Turnover has only grown slowly, partly because SMEs recorded another decline in international sales. This brings productivity growth to a halt. Additionally, more enterprises are looking for successors than before. However, the outlook is positive: SMEs are coming out of hiding and are continuing to expand.

PDF for download:

KfW SME Panel 2015  (PDF, 2 MB, non-accessible)

The current statistics do not yet reflect the decision to expand public investment activity. In the second quarter of 2015, real government gross fixed capital formation fell by 2.4 % on the previous quarter, after already falling slightly in the first quarter. But the stage is set for a reversal, with first tangible increases since 2011 anticipated for 2016. We expect the investment needs for housing and integrating refugees to further increase in the coming years, particularly in the municipalities. Local administrations, particularly the building authorities, must have the capacity to meet this challenge. The need for further action in this area is becoming urgent.

PDF for download:

KfW Investment Barometer Germany October 2015  (PDF, 33 KB, non-accessible)

In September the SME sector presented itself in a generally robust condition. The business climate dropped slightly but remains well above the average level. Besides, the downturn is not spread across all sectors but affects only small and medium-sized export-oriented manufacturers. Their worries are probably due primarily to the weak growth in emerging economies. In the sectors with a domestic focus, on the other hand, the mood has further brightened. The key figures of the German automobile industry in the months ahead will show whether the VW scandal has consequences for the economy as a whole.

PDF for download:

KfW-ifo SME Barometer September 2015  (PDF, 150 KB, non-accessible)

KfW/ZEW CO2 Barometer

In 2014, EUA price expectations were corrected upwards and depict a positive trend in the medium and long term. Nevertheless, CO₂ abatement remains in most cases only a side effect of energy efficiency measures and the EU ETS generated only weak incentives for firms to implement carbon abatement measures. A binding international climate agreement is considered to be less harmful for companies’ competitiveness than Europe-wide or national climate actions.

PDF for download:

KfW/ZEW CO2 Barometer 2015 – Carbon Edition  (PDF, 2 MB, non-accessible)

Companies in the EU Emissions Trading Scheme: does climate policy influence their competitiveness?  (PDF, 82 KB, non-accessible)

Germany's small and medium-sized enterprises are looking to the autumn with confidence. SMEs do not believe the turmoil on the financial markets could stall the recovery. Large enterprises are less sure of the future. Their business expectations already dropped sharply back in April. In August they deteriorated even further. Yet despite all legitimate fears, their business so far has also developed well. Large enterprises again gave their business situation a better assessment than in the previous month. The KfW-ifo SME Barometer for August confirms our forecast of real GDP growth of 1.8 % this year and 2 % next year for Germany. However, a stronger than anticipated economic downturn in China that could spill over to other emerging economies or new imponderables in Europe could noticeably disrupt exports and thwart the expected revival of investment.

PDF for download:

KfW-ifo SME Barometer: August 2015  (PDF, 47 KB, non-accessible)

KfW Research lifts its growth forecast for real GDP from 1.5 to 1.8 % for 2015. We expect 2 % growth for 2016. Several factors make the economic outlook appear more favourable than in the spring. The depreciation of the euro is providing a stronger boost to German exports than expected. The new rescue package for Greece has stabilised the euro area for the time being. Rising incomes, growing employment and the falling oil price are boosting household consumption. Improved competitiveness and rising demand are encouraging businesses to gradually abandon their reluctance to invest. Increasing tax revenues and infrastructure initiatives are allowing municipalities to catch up on deferred infrastructure investments. We see the biggest acute risk in a possible collapse of China's economy.

PDF for download:

KfW Business Cycle Compass August 2015  (PDF, 29 KB, non-accessible)

Focus on Economics

In developed countries, investments in R&D are the key driver for growth. The fact that Germany has stepped up its R&D efforts since 2007 is therefore very encouraging. This has occurred both in industry and the public sector. Germany now ranks fifth among comparable OECD countries, which means it even beats the USA and is far ahead of France and Great Britain.

Germany’s strength in R&D is due to its favourable sector composition and has less to do with how much effort the respective sectors put into R&D.

PDF for download:

An international comparison of R&D: Germany benefits from industrial research strength  (PDF, 176 KB, non-accessible)

In a last-ditch attempt, Greece has agreed with its European partners to start negotiations on a third bailout package. This is also a relief for German SMEs. After falling in the previous month, their business climate is resuming the positive trend that started in autumn of last year, climbing in July to the highest level in thirteen months. Both components are higher, although business assessments have risen more strongly than expectations; their only moderate growth is probably due primarily to the international environment.

PDF for download:

KfW-ifo SME Barometer July 2015  (PDF, 133 KB, non-accessible)

Focus on Economics

When companies take a long time to fill vacant positions, or are unable to fill them at all, their competitiveness suffers. Although SMEs are considerably more optimistic about recruiting skilled workers than they were a few years ago, nonetheless more than half of companies that are hiring expect to experience recruitment problems in the short term. SMEs clearly see the qualification of labour supply as the greatest issue. They are concerned about a shortage of applicants in certain occupations – primarily in the construction and manufacturing sectors. Many companies are also worried that applicants do not have the required additional qualifications, particularly in knowledge-intensive industries. In the short term, immigration can supply qualified workers to mitigate the impact of structural bottlenecks, whereas a lack of additional qualifications calls for targeted education and training initiatives.

PDF for download:

Recruitment of skilled workers in SMEs: Optimism must not distract from qualification problems  (PDF, 207 KB, non-accessible)

European unease surrounding the negotiation drama with Greece has left its mark. The German SME sector looks anxious and has made a distinctly tentative start to the summer, with its June business climate index surrendering virtually half the gains it had made in the previous two months. The deterioration in sentiment can be exclusively traced back to the manufacturing industry and wholesale segments – a strong indication that the deterioration can be attributed principally to the European and international environments.

PDF for download:

KfW-ifo SME Barometer June 2015  (PDF, 48 KB, non-accessible)

Economics in Brief

Under the terms of a treaty between the Federal Republic of Germany and the GDR, the two countries entered an economic and social union on 1st July 1990. Since then, living conditions in the eastern part of the country have largely risen to match those in the economically powerful West. From an international or historical perspective, there is no longer anything out of the ordinary about the disparities between German regions. Those problems that remain – such as relatively high levels of unemployment and depopulation – are also evident in other structurally weak regions. These regions should be strengthened by promoting innovation and investment.

PDF for download:

25 years of economic and social union – proving the strength of Germany's social market economy  (PDF, 82 KB, non-accessible)

Business Survey

This was the fourteenth occasion on which the KfW Group, in collaboration with 21 business associations, conducted a company survey on the subject of bank behaviour and financing.

The most important findings were as follows:

• Low interest rates, greater ability to self-finance and economic recovery push financing climate to all-time high
• Structural problems continue to hinder access to loans for small and recently-formed enterprises
• Room for improvement with regard to ratings communication

PDF for download:

Business Survey 2015 – Summary  (PDF, 63 KB, non-accessible)

Press release

Germany is experiencing a robust economic upswing – at least in the eyes of small and medium-sized companies. In May their business sentiment rose only slightly. However, the improvement came on the heels of a strong boost in the previous month, which underlines the generally positive trend in sentiment. Situation assessments and expectations have improved but the responses received from large enterprises show that economic expectations are generally not limitless. They revised their business sentiment downward to a three-month low. It is the second consecutive decline in their expectations.

PDF for download:

KfW-ifo SME Barometer May 2015  (PDF, 47 KB, non-accessible)

KfW Research confirms its cautious economic forecast of 1.5 % for 2015. The main reason is the moderate growth which we expect for the second quarter (0.2 %). In 2016 GDP growth is likely to accelerate to 1.8 %. Consumer spending remains the main driver. Corporate investment should pick up from a low level. Exports are growing at a rather subdued rate because of the continuing weakness in global trade – despite stimulating effects from the euro depreciation. Risks and opportunities of the forecast are balanced: the exchange rate-driven stimulation of exports could turn out stronger than anticipated, while an escalation of the Greek debt drama would damage the economy.

PDF for download:

KfW Business Cycle Compass Germany June 2015  (PDF, 41 KB, non-accessible)

KfW Start-up Monitor 2015

The number of start-ups in Germany rose again in 2014. As the KfW Start-up Monitor 2015 shows, around 915,000 took the plunge into self-employment last year – some 47,000 more than in 2013. The rise is a result of growth in the number of people starting up full-time businesses and a decline in part-time start-ups. Start-ups in the freelance sector were the driving force behind entrepreneurial activity. In contrast, there were fewer start-ups operating in the commercial sector than in 2013.

KfW Start-up Monitor 2015  (PDF, 330 KB, non-accessible)

The German real economy is benefiting from cheap oil, the weaker euro and the growing signs of a rebound in the euro area. Coinciding with the awakening of spring, this assessment is now being shared by SMEs as well, which have been rather sceptical for a long time. Assessments on the current business situation have reached the highest level since June 2014 and expectations have climbed to a nine-month high. It is a successful start to the second quarter and confirms that the forces driving the economic upturn are gaining strength. The job market is one pillar on which the economy can rely.

PDF for download:

KfW-ifo SME Barometer April 2015  (PDF, 46 KB, non-accessible)

With regard to available machine and factory capacity, utilisation levels in Germany will increase by only a small margin in 2015. Accordingly, we anticipate only a modest increase in corporate investment over the current year.

PDF for download:

KfW Investment Barometer Germany May 2015  (PDF, 100 KB, non-accessible)

Economics in Brief

Years of strong economic growth in the BRICS have been a blessing for Germany's export industries and have attracted German direct investment. However, Germany is now feeling the recent loss of momentum in these countries' economies. Still, overall trade and investment remains high.

PDF for download:

The BRICS – important trading partners for Germany  (PDF, 88 KB, non-accessible)

Declining oil prices and the weaker euro have given rise to a degree of economic optimism, causing many analysts to revise their real growth forecasts for 2015 upwards. However, this could well provide scope for future disappointment. The SME sector – the very backbone of the German economy – is distinctly unimpressed by predictions of growth. Figures for March continue to point to virtual stagnation in the SME sector.

PDF for download:

KfW-ifo SME Barometer March 2015  (PDF, 51 KB, non-accessible)

German SMEs enter spring with guarded optimism. Improved expectations stabilised the business climate for SMEs in February. Nevertheless, SMEs do not assess their business conditions more positively than in the autumn. Strong fourth-quarter production growth has influenced neither their view of current business conditions nor their business expectations. SMEs obviously do not expect the boom-like development to continue. The current economic uncertainties hold much potential for surprises.

PDF for download:

KfW-ifo SME Barometer February 2015  (PDF, 46 KB, non-accessible)

KfW Research now expects 1.5 % growth in real terms for 2015 (previous forecast 1.0 %); GDP growth will likely accelerate to 1.8 % in 2016 (initial forecast). Steady contributions will continue to come from consumption in particular but also from residential construction. The main drivers are employment gains in combination with tangible wage increases and low interest rates. Cheap oil and a cheap euro currently provide further stimuli which, together with the unexpectedly strong final quarter of 2014, have prompted our upward revision. The fragile situation in Europe, among other factors, is preventing a more vigorous recovery.

PDF for download:

KfW Business Cycle Compass Germany March 2015  (PDF, 35 KB, non-accessible)

Again, in 2015, housing construction will continue to substantially prop up the economy. Driven by high migration numbers and low interest, demand for housing will continue to rise. According to our predictions, investments in housing construction will increase by 2.5 %. In national terms, we are still a long way off a property price bubble but we must continue to monitor the regional and local markets for signs of overheating.

PDF for download:

KfW Investment Barometer Germany: February 2015  (PDF, 45 KB, non-accessible)

KfW SME Innovation Report

Standstill in Europe is slowing down innovation

German SMEs’ innovative activity has slowed for the third consecutive year. The latest figures reveal that only 28 % of small and medium-sized enterprises are still investing in innovative products or processes. As a result, the share of innovative SMEs is currently even lower than in the years 2007–2009, which were heavily influenced by the financial crisis. The causes for this are continuing economic stagnation in Europe and increasing price competition. Sales and employment opportunities are not being exploited.

KfW SME Innovation Report  (PDF, 194 KB, non-accessible)

Expectations of a swift acceleration in German economic activity have been dampened somewhat: the SME business climate stagnated in January 2015 at the same level as December. This is solely thanks to the better evaluation of the current business situation. By contrast, the firms’ anything but euphoric view on future trends prevented a third consecutive increase in the business climate, which is commonly seen as a reliable signal for a turnaround in economic activity. We are therefore reluctant to revise our economic forecast upwards from the 1 % currently predicted for 2015.

PDF for download:

KfW-ifo SME Barometer January 2015  (PDF, 134 KB, non-accessible)

Focus on Economics

There are currently over 42 million people in work in Germany – more than ever before. At the same time, the total number of hours worked per year is actually slightly lower than in the 1990s. If this trend continues, it would add substantially to the already strong demographic pressure on the potential for growth.

PDF for download:

Decline in working hours threatens to exacerbate the consequences of an ageing population  (PDF, 150 KB, non-accessible)

SMEs finish 2014 on a conciliatory note and show signs of optimism that the phase of weak economic growth will come to an end in 2015. The business climate has improved in December for the second month in a row after a continued downward trend from April to October. This improvement was seen in a rather significant increase of 2.8 points to 12.3 balance points, which is roughly one and a half times higher than a normal month-on-month change. The last time this sentiment indicator posted a slightly higher level was in July. Most of all, this increase was due to renewed confidence among businesses.

PDF for download:

KfW-ifo SME Barometer December 2014  (PDF, 37 KB, non-accessible)

SMEs became gradually more pessimistic in the course of 2014, consistently revising their business expectations downwards since the peak in January. But at least the negative trend has been stopped for now. After nine declines in a row, companies finally became more optimistic in November, thereby raising hopes that the lengthy period of weak activity can be overcome during 2015: The improvement in the business climate was less pronounced, however as SMEs are not as positive about their current business assessments than in the previous month.

PDF for download:

KfW-ifo SME Barometer November 2014  (PDF, 135 KB, non-accessible)

KfW is halving its economic forecast for 2015 to 0.8 %, adjusted for calendar effects (previous forecast 1.5 %). 2014 should see real growth of 1.4 % at the end of the year, lower than was expected last time round (previous forecast: 1.6 %). Economic growth has come to a standstill since the brakes were applied in spring; also little more than stagnation is scarcely realistic until well into the coming year.

The difficult international underlying conditions are not only holding back growth in German exports but are also prompting firms to postpone investments on a considerable scale; while the positive impetus from the labour market, personal consumption and residential property construction is easing somewhat, it continues to be the mainstay of the economy.

PDF for download:

KfW Business Cycle Compass Germany December 2014  (PDF, 119 KB, non-accessible)

The German economy is in the grip of an increasingly entrenched period of weakness. Sentiment at the beginning of the fourth quarter is even worse than at the end of the third. October saw the business climate among SMEs fall for the seventh time in succession. This coincides with a downturn in sentiment among SMEs, which means that while companies still take a positive view of their current situation, pessimism prevails for the first time since December 2012 when it comes to the anticipated trend. The fact that this weakness is gradually threatening to spread to domestic demand is worrying.

PDF for download:

KfW-ifo SME Barometer October 2014  (PDF, 132 KB, non-accessible)

KfW SME Panel 2014

SMEs feeling the impact of weak growth in Europe, and bracing for harder times ahead

In 2013 SMEs were unable to escape the conditions in Germany and Europe. This is shown by the 2014 KfW SME Panel. Turnover and employment are rising, but the momentum remains subdued. International activities in particular are experiencing a setback. Repeated increases in profits are being retained by companies. Despite large equity holdings, they are reluctant to invest. SMEs are playing a waiting game. A systematic, growth-oriented course for Europe would be important for generating confidence.

KfW SME Panel 2014  (PDF, 418 KB, non-accessible)

Focus on Economics

Warnings grow about possible overheating on European residential property markets. Yet the situation is anything but homogenous. In some countries corrections on real estate markets are still underway, while in others, alarming price developments can be observed again and corrective measures must be taken.

European housing markets: are overheating concerns justified?  (PDF, 143 KB, non-accessible)

Economics in Brief

Sales expectations in an industry are crucial for the innovation activity of small and medium-sized enterprises. This applies above all to the launch of product imitations. By contrast, process innovations and new products on the market are less dependent on industry sentiment. The gloomier economic outlook at present is likely to result in a further decline in the German innovation rate.

PDF for download:

Falling sales expectations curb SME innovation activity in Germany  (PDF, 146 KB, non-accessible)

Things are no longer running smoothly in the German economy. If companies are correct in their self-assessments, the strong reductions in incoming orders and industrial production in August will not be the last bad news to emerge from the hard economic data. For September, small and medium-sized companies reported a continued downward trend in the business climate. Sentiment has thus worsened for the sixth month in a row. It is not only the present, but the future too that is looking increasingly bleak.

PDF for download:

KfW-ifo SME Barometer September 2014  (PDF, 137 KB, non-accessible)

Research and development expenditure is now officially classed as investment. The investment rates of companies and the government are higher and slightly more stable for recent years as a result. We expect corporate investment to grow by 2 ¾ % in real terms in 2014 and 2015. Companies are not ready for more at present. This is expected to be too low to boost growth in productivity in Germany. Public investment is still too low. The total net investment in infrastructure since 2003 is EUR -55 billion.

PDF for download:

KfW Investment Barometer Germany: September 2014

Focus on Economics

The federal states of eastern Germany have pulled off an impressive economic upswing since the fall of the Berlin Wall. In the years immediately after the wall came down, per-capita GDP rose at rates identical to those seen during the economic miracle after the war. None of the other transitioning economies of Eastern Europe has been able to achieve such astounding progress. In terms of GDP per capita, eastern Germany is in the middle of the pack within Europe. Today the regional differences within Germany are even less pronounced than they were during the days of the Weimar Republic, and compare favourably with those of the other major industrialised countries.

PDF for download:

Arrived at normality – Germany 25 years after the fall of the Berlin Wall  (PDF, 266 KB, non-accessible)

The business expectations of SMEs are falling significantly, further deteriorating the business climate. Geopolitical tension is not the sole reason for this. Growth in the eurozone is weaker than expected, particularly in important sales markets such as France and Italy. The faltering of the economy is also manifesting itself in the situation assessment of large enterprises. According to our updated forecast, GDP will probably grow by 1.6 % in 2014 as a whole.

PDF for download:

KfW-ifo SME Barometer August 2014  (PDF, 134 KB, non-accessible)

Focus on Economics

Since the onset of the financial crisis, France has been experiencing weak growth and a high level of unemployment. France is considered "the sick man of Europe" in public debate and gets deluged with proposals. But what is the real reason for the current weakness in growth? What does it mean for the eurozone? What would be an appropriate economic policy strategy for the French government? What kind of support should the European partner countries provide?

PDF for download:

A fair look at France

KfW is revising its economic forecast for 2014 downwards to 1.6 %. The main reasons are the disappointing growth in the Eurozone, the unexpected contraction in Q2 and the geopolitical tensions that weigh on the companies’ sentiment. The decline in the second quarter (-0.2 %) is fundamentally overstated because of the very mild preceding winter. Thanks to the good labour market and the reliable pace of consumption and residential construction quarterly growth is set to recover. Annual calendar-adjusted growth is expected to be 1.5 % in 2015.

PDF for download:

KfW Business Cycle Compass Germany August 2014

Global tensions are fuelling uncertainty among German companies. The latest escalation has not left SMEs untouched either. That said, the downturn in sentiment is still relatively contained. Large companies, on the other hand, have considerably greater concerns. They revised their expectations downwards in July by twice the usual monthly rate of change. This is already the second consecutive significant decline, bringing the expectations indicator of the large companies down from a healthy level to almost zero in the space of just two months.

PDF for download:

KfW-ifo SME Barometer July 2014  (PDF, 136 KB, non-accessible)

KfW Sustainability Indicator

Germany continues to develop sustainable. The latest KfW Sustainability Indicator for 2013 reveals a slight improvement to the score of 0.4 (previous year: 0.3) and has improved in all three of the sustainability dimensions: economy, environment and social cohesion.

Economic and social dimensions in the year under review are again above the 10-year average. While the environment dimension is lower than targeted for the second year in a row, it has made up some ground on the previous year.

PDF for download:

KfW Sustainability Indicator 2014 – Summary

Germany has some scope for public investment without violating the debt brake. In total, the federal government and municipal authorities could undertake additional investments in the region of EUR 150 billion (about 5 % of GDP) in the years ahead, if the government were to abandon budget surpluses that are not required by the constitution. The main arguments in favour of such a move are the fact that Germany trails most other industrialised countries in terms of public investment, the low interest rates and demand for safe forms of investment for retirement provisions.

PDF for download:

KfW-Investment Barometer Germany – Q2 2014  (PDF, 144 KB, non-accessible)

The economy continues to improve but at a noticeably slower rate than in the first quarter of 2014. In June, the SME business climate deteriorated for the third time running. Sentiment nevertheless remains above average, which clearly indicates a normalisation of speed and not a stalling of the economic engine. Both of the climate components declined compared to the previous month. In contrast, large enterprises rated their current business activities as noticeably better. However, their expectations worsened dramatically and fell to a ten-monthly low.

PDF for download:

KfW-ifo SME Barometer June 2014  (PDF, 135 KB, non-accessible)

Focus on Economics

Corporate investments in Germany are low. New investments still cover depreciation, thanks to SMEs: since 2004, net investment has been in the black, totalling EUR 350 billion. Net investment in large companies, on the other hand, is well in the red. Warnings signs are growing among SMEs too, though: net investments are declining. Assets are being eroded gradually in SMEs and this is putting competitiveness on the line. More investment is needed. Perhaps the state can lead the way.

PDF for download:

Investments: SMEs still in the black, large companies long since in the red

The upswing is not over, but it is losing momentum: after the dream start to 2014 the German economy drops back to its normal pace again in the second quarter. The downturn in sentiment at an elevated level as registered by companies in May fits in nicely with this scenario: the SME business climate is somewhat gloomier and is now sitting at roughly the same position as last December. Both assessments of current business and expectations are down on the previous month. Sales price expectations are alarmingly weak.

PDF for download:

KfW-ifo SME Barometer May 2014

KfW confirms its economic forecast: the German economy will grow by 2.0% (adjusted for calendar effects) in 2014 and by 1.6 % in 2015. Following the dream start as a result of the mild weather (+0.8% in Q1 2014), quarterly growth in the foreseeable future will be close to the trend rate. Consumption and residential construction are benefiting from the good labor market and business investments are benefiting from favourable sales prospects and low interest rates. Net exports are expected to contribute slightly negatively to growth despite the export recovery, as vivid domestic demand is increasing imports.

PDF for download:

KfW Business Cycle Compass Germany May 2014  (PDF, 112 KB, non-accessible)

The upturn is still on track. Neither the conflict in eastern Ukraine, nor the slowdown of growth in China or a possible dip in consumer prices in Europe have spoiled the mood of small and medium-sized firms to any significant extent so far. The SME business climate in April was almost unchanged from the 3-year high in the previous month. By contrast, sales price expectations are still unusually subdued. This indicates that the pressure on prices throughout Europe is clearly leaving its mark in Germany too.

PDF for download:

KfW-ifo SME Barometer April 2014

Economics in Brief

Seen as a whole, lending in Italy, Spain and Portugal declined to the same degree. However, a closer look at the figures reveals some differences. Sole proprietors have more to contend with than larger companies; and the outlook for Spain and Portugal is better than it is for Italy.

PDF for download:

SME loans in southern Europe – are the lean times over?  (PDF, 235 KB, non-accessible)

KfW has confirmed its economic forecast for 2014 and presented its first estimate for 2015: After a quick jump in 2014 (2.0 %), real economic growth in Germany adjusted for calendar effects will slow to 1.6 % in 2015; the general conditions in Europe and the emerging countries will not allow for more. Business investment will pick up in 2014 and 2015. A setback in Europe remains the greatest economic risk. However, a noticeable slow-down of the global economy is also possible if the financial market turbulence seen in the emerging countries gets out of control.

PDF for download:

KfW Business Cycle Compass Germany February 2014

Focus on Economics

China’s economic boom rests to a large extent on high growth levels in its exports and investment. This is not a problem per se, but it is an issue insofar as misguided economic policy is evident in this area. A turnaround is certainly already underway but will require measures that go further. For China’s economic partners this change of course is not a bad thing at all. The German economy should be able to continue to do a good job of asserting itself in a changing Chinese market.

PDF for download:

Where is China headed and what does this mean for Germany and the world?  (PDF, 243 KB, non-accessible)

Focus on Economics

Debt and deficits are usually seen as negative – the result of poor financial management. Yet they are market economy instruments and essential to the existence of their counterparts: assets and savings. These instruments allow money to flow from sectors with savings to sectors wishing to invest. So, it is difficult to praise surpluses and assets while at the same time condemning deficits and debt. This Focus on Economics looks at the key relationships.

PDF for download:

Should we feel bad about debt?  (PDF, 182 KB, non-accessible)

The upturn is still on course. With a broad base across all sectors – indeed, only the retail trade is slightly less satisfied – the SME business climate trend saw an improvement to the best result since July 2011. However, this time it is only business expectations that are helping to better the climate. In contrast, assessments of the current business situation were down slightly. But the minimal setback has not called the general upwards trend into doubt: the previous-year level of the assessments of the current situation from January 2013 has been considerably surpassed.

PDF for download:

KfW-ifo SME Barometer January 2014  (PDF, 204 KB, non-accessible)

Focus on Economics

Both the global financial crisis and the debt crisis in the Eurozone have taught us to be more alert to external economic imbalances and to correct adverse developments early on. However, a current account deficit in poorer countries may very well promote development. With Germany enjoying a surplus, the correct approach cannot be to curb exports, but to promote investment and consumption in our country, thus stimulating demand for imports.

PDF for download:

The Problem of Balance of Payment Imbalances  (PDF, 274 KB, non-accessible)

Focus on Economics

The traditionally high levels of youth unemployment in Greece, Italy, Portugal and Spain soared even further with the outbreak of the financial crisis. Rigid labour markets and deficiencies in the education systems are major structural causes of this problem. In the medium to long term, labour market reforms and changes to the education system, in addition to an improvement in the overall economy, are urgently needed to overcome the problem. But in the short term, active labour market policies and increased mobility for training and employment purposes can provide relief.

PDF for download:

Youth unemployment in Southern Europe – Result of the crisis or a flaw in the system?  (PDF, 270 KB, non-accessible)

Focus on Economics

Although the innovation activities of SMEs have stabilised in the third year after the financial crisis, they have not yet fully recovered. The share of companies that have launched new products or processes has stagnated at around 30 %, which remains almost one third below pre-crisis levels. However, the good prospects for the economy in 2014 offer hope of a turnaround. The most important prerequisite for an expansion of innovation efforts remains an improvement in orders and sales.

PDF for download:

KfW SME Panel 2013: Innovation – Are German SMEs finally in the starting blocks?  (PDF, 252 KB, non-accessible)

Economics in Brief

WTO members have committed to provide better information about existing rules, to apply them in a more transparent manner, and to strengthen the right of appeal. The agreement is expected to be particularly beneficial for economic growth and the labour market, especially in developing countries. But it appears unlikely that these benefits will actually materialize.

PDF for download:

The Bali WTO resolutions: plenty of boasting, but not much substance  (PDF, 259 KB, non-accessible)

German companies are confident heading into the New Year. The SME business climate finished 2013 at its highest level since February 2012. Both climate components are slightly higher. For 2014, which has now begun, we expect real growth of 2%. The largest individual risk remains a potential setback in the European stabilization process. There is also a risk that positive sentiment will dissipate if expectations are not promptly met. Investment activity would be the main area to suffer if this were to occur.

PDF for download:

KfW-ifo SME Barometer December 2013  (PDF, 204 KB, non-accessible)

Economics in Brief

Latvia's adoption of the euro sends a strong signal about the the currency’s appeal.

PDF for download:

Euro newcomer Latvia  (PDF, 175 KB, non-accessible)

SME business climate jumps to year high.

PDF for download:

KfW-ifo SME Barometer November 2013  (PDF, 265 KB, non-accessible)

Germany in recovery mode – some risks remain.

PDF for download:

KfW Business Cycle Compass Germany November 2013  (PDF, 163 KB, non-accessible)

Focus on Economics

Austerity policies have reduced the deficit but national debt has not stabilised. Austerity is a problem in its own right. Will more austerity actually stabilise the situation? Well yes, but more patience will also be needed.

PDF for download:

Fiscal consolidation in Spain: the battle goes on  (PDF, 234 KB, non-accessible)

Economics in Brief

The British economy has found its way back to growth in 2013. The recovery rests on a shaky foundation, as the government is relying on risky measures in the real estate sector.

PDF for download:

United Kingdom: Recovery with risks  (PDF, 208 KB, non-accessible)

Focus on Economics

Ireland will succeed in returning to the capital markets when the EU financial support package ends in December, even if there is still uncertainty concerning the Irish banking sector.

PDF for download:

Ireland: Return with risks  (PDF, 97 KB, non-accessible)

Focus on Economics

The extreme German current account surplus mirrors weak domestic demand. The right response is more investment, not choking off exports by distortionary policy interventions.

PDF for download:

Strong exports are good for Germany, excessive current account surpluses are not  (PDF, 279 KB, non-accessible)

SME business climate improves further.

PDF for download:

KfW-ifo SME Barometer October 2013  (PDF, 204 KB, non-accessible)

Focus on Economics

More per capita growth is possible, despite declining working population.

PDF for download:

Solving the demographic problem  (PDF, 252 KB, non-accessible)

Stable business expectations among SMEs.

PDF for download:

KfW-ifo SME Barometer September 2013  (PDF, 205 KB, non-accessible)

Focus on Economics

The ECB and Fed conduct their respective monetary policies differently. An exit from expansionary monetary policy would therefore result in different exit scenarios and interest rate effects.

PDF for download:

World of difference between Fed and ECB monetary policy  (PDF, 200 KB, non-accessible)

Focus on Economics

The previously acute debt crisis in poor developing countries has eased considerably. The opportunities and risks of borrowing will have to be carefully weighed up in future.

PDF for download:

Debt in Low Income Countries: crisis eases, risks remain  (PDF, 244 KB, non-accessible)

Broad-based and strong improvement in business climate.

PDF for download:

KfW-ifo SME Barometer August 2013  (PDF, 237 KB, non-accessible)

Economics in Brief

Thanks to fundamental economic reforms, since 2002 Turkey has enjoyed the highest GDP growth in the OECD. However, there are continuing structural problems, with the high current account deficit in particular causing worries.

PDF for download:

After a sustained boom Turkey is facing a difficult period  (PDF, 71 KB, non-accessible)

End of recession in Europe benefits Germany.

PDF for download:

KfW Business Cycle Compass Germany August 2013  (PDF, 167 KB, non-accessible)

Optimism among SMEs holding up.

PDF for download:

KfW-ifo SME Barometer July 2013  (PDF, 204 KB, non-accessible)

Focus on Economics

Both governments are now called upon, however, to correct undesired developments and address the many challenges of the future.

PDF for download:

Emerging economies China and India: heavyweights facing big challenges  (PDF, 194 KB, non-accessible)

Confidence is returning - guardedly.

PDF for download:

KfW-ifo SME Barometer June 2013  (PDF, 237 KB, non-accessible)

Economics in Brief

On 1 July 2013 Croatia became the 28th member of the European Union. The European Union is gaining a new member which still has homework to do in many areas but is on a higher level of development than some earlier accession countries.

PDF for download:

Welcome Croatia!  (PDF, 178 KB, non-accessible)

Economics in Brief

The yen has lost considerable value against the euro. Today, Japanese products are approximately 25 % cheaper than in autumn 2012. Despite the differing geographical focuses of the Japanese and German exports, the devaluation of the yen may slow down sales of German goods in selected markets.

PDF for download:

Yen depreciation slows German exports  (PDF, 213 KB, non-accessible)

Economics in Brief

In Germany and Bolivia alike, 16 % of the population is considered poor. What at first glance looks like a confusing figure is the result of different concepts by which poverty is measured in developing and industrialised countries.

PDF for download:

Poverty in developing and industrialised countries - one term, two meanings  (PDF, 213 KB, non-accessible)

Economics in Brief

A multi-dimensional indicator measuring social prosperity and progress, such as was discussed in the Commission of Enquiry on Prosperity, Growth and Quality of Life of the German Bundestag, deserves broad support.

PDF for download:

Alternative welfare is measurable  (PDF, 237 KB, non-accessible)

SMEs: Scepticism sets in.

PDF for download:

KfW-ifo SME Barometer May 2013  (PDF, 287 KB, non-accessible)

Germany will narrowly avoid stagnation in 2013.

PDF for download:

KfW Business Cycle Compass Germany May 2013  (PDF, 164 KB, non-accessible)

Focus on Economics

Public discussion on the competitiveness of European countries tends to focus on the problems of Southern Europe. There is a need for structural reforms to improve competitiveness not only in Italy, but in France and Germany too.

PDF for download:

Routes out of recession: improving competitiveness in Germany, France and Italy  (PDF, 227 KB, non-accessible)

Economics in Brief

More than 170 million people from developing countries work abroad. The monetary transfers which they send back to their home countries are very important, especially for a number of poor developing nations.

PDF for download:

Remittances from migrant workers stabilise the economies of developing countries  (PDF, 212 KB, non-accessible)

Business climate for SMEs follows the negative trend.

PDF for download:

KfW-ifo SME Barometer April 2013  (PDF, 236 KB, non-accessible)

Focus on Economics

Germany needs more investment. Its population is ageing, and for this very reason it needs a modern capital stock.

PDF for download:

Investing for the future  (PDF, 329 KB, non-accessible)

Economics in Brief

The IMF expects a high level of economic growth to continue in developing countries. The development seen in low-income countries, which has been founded on the significant progress made in the area of reform, is especially pleasing. At present, risks to the global economy lie mostly within industrialised countries.

PDF for download:

IMF sees continued progress in developing countries  (PDF, 260 KB, non-accessible)

SMEs clearly more confident than large-scale enterprises.

PDF for download:

KfW-ifo SME Barometer March 2013  (PDF, 42 KB, non-accessible)

Focus on Economics

The international competitiveness of firms located in economies which do not promote the fracking technology, such as Germany, could be affected. Therefore, we will discuss in our latest Focus on Economy the question ‘Fracking – you snooze, you lose?'.

PDF for download:

Fracking - you snooze, you lose?  (PDF, 345 KB, non-accessible)

Confidence is growing by leaps and bounds.

PDF for download:

KfW-ifo SME Barometer February 2013  (PDF, 62 KB, non-accessible)

Corporate investment: Gradual recovery.

PDF for download:

KfW Investment barometer Germany  (PDF, 41 KB, non-accessible)

Focus on Economics

The economic turbulence in the Eurozone brings back memories of the Asian crisis of 1997/98. At the time, a long boom phase ended in some Asian "tiger states" - their economies collapsed. Both the Asian Crisis and the current problems of the Eurozone periphery countries revealed considerable structural weaknesses. The Asian economies, however, managed to recover quite fast. This paper argues that despite the existence of similar problem areas, the Asian experience does not provide any patent recipes for solving the Eurozone crisis.

PDF for download:

The Asian Crisis of 1997: No patent remedies for solving the Eurozone debt crisis  (PDF, 82 KB, non-accessible)

Germany is quickly recovering from the contraction in the final quarter of 2012.

PDF for download:

KfW Business Cycle Compass Germany February 2013  (PDF, 141 KB, non-accessible)

Gearing up for a rebound.

PDF for download:

KfW-ifo SME Barometer January 2013  (PDF, 185 KB, non-accessible)

Focus on Economics

The main goal, however, that of improving the banks' liquidity, has been achieved.

PDF for download:

"Big Bertha" and its effectiveness  (PDF, 106 KB, non-accessible)

Economics in Brief

According to the most recent World Bank report the global economy is likely to pick up some steam in the next three years. This is primarily due to the Euro area which is now on a convincing path of reform according to the World Bank.

PDF for download:

Updated view of the economic situation: then World Bank Report "Global Economic Prospects", January 2013  (PDF, 200 KB, accessible)

Economics in Brief

Experts and media alike refer to "emerging economies" even though it is not clear what exactly characterises this group of countries.

PDF for download:

The confusing proliferation of developing country classifications  (PDF, 189 KB, accessible)

Economics in Brief

While a correction of house prices is already underway, a reduction in mortgage debt levels is not yet in the cards. The downward trend in the Dutch housing market will continue.

PDF for download:

House price correction is underway in the Netherlands  (PDF, 172 KB, accessible)

Focus on Economics

In addition, emerging markets are failing to undertake far-reaching financial and structural reforms.

PDF for download:

Fiscal Policy in Emerging Markets – Successes and Challenges  (PDF, 72 KB, non-accessible)

Economics in Brief

ECB monetary policy: Currently no risk of inflation. The ECB has plenty of instruments.

PDF for download:

ECB monetary policy: Currently no risk of inflation  (PDF, 219 KB, accessible)

Focus on Economics

Recessions in the reforming countries are hampering fiscal consolidation. Capital outflows from these countries are a major cause for the contraction of the economies.

PDF for download:

Ways out of the euro crisis: Growth needs financing  (PDF, 224 KB, non-accessible)