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Press Release from 2017-08-02 / Group, KfW Research

SME business sentiment: companies remain buoyant

  • New all-time high thanks to higher expectations
  • Situation assessments are steady at record level
  • Economic outlook has brightened further

The confidence of small and medium-sized enterprises in Germany currently seems to know no bounds, according to the latest KfW-ifo SME Barometer. Their business climate improved by a further 1.1 points in July to 29.2 balance points. This new all-time high – the third in just four months – is the result of SMEs’ even more optimistic outlook on the future. Their business expectations improved by 1.9 points to 16.6 balance points. Their assessments of the current business situation, in turn, remained on the record level of 41.9 balance points after taking a giant leap upwards in the previous month.

Large enterprises were also beaming with confidence in July. Their business climate climbed 2.5 points to 27.0 balance points. Both components of the sentiment indicator contributed to the rise. While business expectations increased at a relatively moderate pace (+1.0 points to 12.0 balance points), large enterprises rated their current business situation considerably more positively than in the previous month (+4.3 points to 42.7 balance points).

The economic basis for the outstanding sentiment of businesses in practically all industries and size classes is that, in addition to strong domestic demand, which has been reliable for a long time, demand from abroad has been growing for several months now, broadening the foundation for Germany’s upswing. The global economy is picking up, which is reflected in the internationally very active large manufacturing firms, whose business climate has just risen to the highest level since February 2011. Confidence levels in the SME sector, however, which includes many globally significant hidden champions, are pointing upwards as well (+1.8 points to 27.9 balance points). The domestically oriented industries have no reason to hide behind them. Construction firms of both size classes rose to new confidence levels in July while wholesalers and retailers were also in the best of moods. Businesses’ hiring plans remain very strong, signalling that the labour market has lost none of its vigour as the key driver of consumption.

‘German business confidence is leaping from one peak to the next and no industry is being left behind’, summarised Dr Jörg Zeuner, Chief Economist of KfW Group. ‘The current euphoria may in part reflect relief that the political risk of further destabilisation of the euro area has not materialised. At the same time, continuing imponderables in the relationship with the USA and the UK are currently causing less concern for exporters, also because the economy in other important regions of the world is picking up speed. What is decisive, however, is that businesses’ outstanding confidence is also beginning to translate into hard data such as industrial output. Germany is benefiting not least from the economic recovery of European partners. If the positive signals from European policy lead to tangible results, the prospects are good that the stronger growth will be more than a flash in the pan’.

The current KfW-ifo SME Barometer can be downloaded from:
www.kfw.de/mittelstandsbarometer
KfW Research