KfW-ifo SME Barometer: The euphoria is gone as downward risks increase

• Global political risks weigh on business sentiment
• SMEs downgrade their situation assessments and expectations again slightly
• Falling export expectations reflect concern over protectionism and situation in Italy

Confidence among German SMEs dropped again in May. The protectionist policies of the US administration as well as the latest news surrounding the formation of an anti-euro government in Italy are dragging business sentiment down further. It fell by one point to 13.9 balance points. SMEs’ business expectations in particular are on the decline and, after a drop of 1.4 points to 2.1 balance points, are now just slightly above their long-term average level. But the current business situation remains on an unusually high level, even if it is seen as slightly weaker than in the previous month (-0.6 points to 26.6 balance points).

“The euphoria is gone and worries are growing”, commented Dr Jörg Zeuner, Chief Economist of KfW Group. “A glance at individual sectors shows that global political risks in particular are weighing on sentiment. Business confidence among SME manufacturers stagnated in May but has deteriorated significantly overall in recent months owing to decreasing expectations. Sentiment among large manufacturers continued to fall in May as well. In both business size classes the decline is associated with weaker export expectations, which have literally plummeted since the start of the year, reflecting concern over a trade war triggered by the US. “The recognition that the US is actually serious about its protectionist policies weighs heavily”, said Zeuner. “The worries over the stability of our neighbour to the south have become an additional burden since the election in Italy. This year Germany can again rely on consumption demand and construction as pillars of the business cycle. I expect a growth rate of 2.1%. But the crucial factor for the pace of growth will probably be how corporate investment responds to the increased uncertainty and lower business expectations”, added Zeuner.

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