KfW-ifo SME Barometer: Sentiment among German SMEs soars to new heights

• Business climate reaches sixth all-time high this year
• Business situation has improved, expectations are steady on a high level
• Upswing to continue into the new year, difficulty in forming government is not affecting business cycle

SME business confidence in Germany is growing in leaps and bounds. In November SMEs raised the bar for all-time high confidence for the sixth time in a row this year. The key indicator of the KfW-ifo SME Barometer rose by 0.7 points to now 31.4 balance points. This time, the reason was the improved business situation (+1.6 points to 44.5 balance points). Business expectations for the coming six months remain steady at a high level (-0.1 points to 18.6 balance points).

Large enterprises also exceeded their record level of the previous month by another 1.2 points to currently 31.3 balance points. They reported a clear improvement in business expectations (+3.0 points to 19.8 balance points) while their situation remained largely unchanged (-0.7 points to 43.0 balance points).

Sentiment remains on a historically high level across all sectors, both among SMEs and among large enterprises. The sector with the highest confidence level is construction despite a sharp drop in both size classes in November. Confidence in manufacturing is still rising and slowly catching up with the construction industry.

German enterprises’ growth also means expanding the workforce. In November SMEs’ employment expectations were above the previous month’s record level (+2.4 points to 21.4 balance points). Among large enterprises, the employment indicator remained nearly unchanged at a high level (+0.1 points to 22.7 balance points).

‘All in all, the new record levels of the KfW-ifo SME Barometer underscore Germany’s outstanding cyclical position’, said Dr Jörg Zeuner, Chief Economist of KfW Group. ‘The robust domestic demand and accelerating pace of global economic growth have encouraged businesses to look to the new year with great optimism. I believe this is justified – we expect 2.5% growth for 2018, after 2.3% this year. The challenging work of forming a new government after the failure of the Jamaica talks is hardly likely to affect the cyclical upturn in Germany in the short term. ‘Long-term economic success, however, will be determined by policy decisions for which Germany needs a functioning government. For example, Germany should contribute to shaping the EU reforms initiated by France’s President Emmanuel Macron as long as the time window is still open‘, said Zeuner.

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