KfW-ifo SME Barometer: business climate falls slightly

• SME business climate drops moderately as expectations decline
• But SMEs still rate their current situation better than ever
• Large enterprises are clearly less optimistic
• Growth rate is on the way back to normality

After extraordinary record-breaking months, the SME business climate dipped slightly in February but remains on a high level, according to the KfW-ifo SME Barometer. Sentiment among small and medium-sized enterprises dropped to
29.4 balance points (-1.3 points). The decline was exclusively due to the more pessimistic outlook on future business. Expectations fell by 2.9 points to 12.9 balance points. In contrast, SMEs rated the current business situation better than ever, with 46.6 balance points (+0.5 points).

Large enterprises’ assessments of the current situation were also nearly unchanged, at a high 45.6 balance points
(-0.2 points), while their expectations fell noticeably (-3.2 points to 9.0 balance points). Their business climate fell by
1.8 points to 26.8 balance points in February.

“German enterprises’ assessments of their current situation and business outlook are increasingly drifting apart”, said
Dr Jörg Zeuner, Chief Economist of KfW Group, adding: “The lower optimism, however, does not signal an imminent downturn. Rather, enterprises are probably adjusting their expectations to increasing capacity constraints, particularly on the labour market. Besides, they are concerned about an excessively strong euro and protectionist measures on the part of the US administration. But given the outstanding business situation, our forecast of 2.5% real growth for 2018 remains realistic. For 2019 we expect a slightly slower growth rate of 1.9%.”

In line with the less optimistic business outlook, employment and sales price expectations also fell in February. But employment expectations were still close to record levels, at 23.2 balance points among large enterprises and
19.0 balance points among SMEs. The same applies to sales price expectations, which are clearly positive.

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