The upswing continues as SMEs remain calm despite bad news

• SME business sentiment up in October
• Situation assessments and business expectations slightly higher
• Large enterprises more optimistic
• Sentiment among SME retailers downright euphoric

Despite bad news – such as the emissions manipulations at VW or the weakness of the emerging economies – Germany's economy remains in robust condition at the beginning of the final quarter of 2015. The current KfW-ifo SME Barometer confirms that the business climate of small and medium-sized enterprises improved by 0.5 points to 17.7 balance points in October. It has now returned to exactly the August level, offsetting last month's decline.

The moderate upward trend in situation assessments that took hold since the beginning of the year continues. Assessments of the current business situation improved by 0.8 points on September to 26.1 balance points. Business expectations are also improving. "Although the rise by 0.2 points to 9.1 balance points is only marginal, it still has to be considered positive given the political controversy in Europe and the remaining uncertainty about the economic strength of the emerging economies, said Dr Jörg Zeuner, Chief Economist of KfW Group.

The business climate among large enterprises improved in October as well (+0.5 points to 13.9 balance points). Although the indicator level is somewhat lower than for SMEs, it is still better than average. While large enterprises' assessments of their current business situation remained unchanged at 21.6 balance points, their expectations actually improved somewhat more strongly than those of SMEs (+0.9 points to 6.0 balance points). "The improved expectations indicate that large enterprises anticipate a further recovery of major export markets in Europe and a foreseeable stabilisation in the emerging economies", said Zeuner.

Still, the main driver of the recovery is domestic demand, particularly consumption. The reasons for this – a good labour market and rising nominal wages combined with very low inflation and low interest rates – have long been known and have increasingly improved the business climate in the retail sector for the last two and a half years. Sentiment among small and medium-sized retailers has now reached a downright euphoric level (+2.6 points to 32.7 balance points), which can be compared only with the unification boom some 25 years ago. But in the other sectors the mood is trending upward as well.

"The improved climate in October takes the wind out of the sails of all those who have prematurely talked up a crisis, it shows that the enterprises have remained unperturbed", commented Zeuner. The strong refugee influx means a positive economic impetus in the form of additional expenditures, particularly on consumption and residential construction. The municipalities' additional expenditures on local accommodation and sustenance of the refugees are also increasing the sales turnover of many SMEs. "All in all we expect the recovery to continue", summarised Zeuner.

The latest October 2015 KfW-ifo SME Barometer can be downloaded from

www.kfw.de/mittelstandsbarometer