KfW-ifo SME Barometer: SME business climate stabilises further

• Sentiment in the German economy continues to brighten
• Expectations are rising but situation assessments are down slightly
• Global trade conflicts remain potential risk factors

Sentiment among SMEs improved for the third consecutive month in September, as surveyed by the current KfW-ifo SME Barometer. After the most recent signs of easing tensions in the transatlantic trade conflict, SME business sentiment rose 0.8 points to 18.1 balance points. Business expectations increased by 1.9 points to now 8.9 balance points, underscoring the continuing optimism of small and medium-sized enterprises. Situation assessments dipped slightly by -0.4 points but continue on a high level, at 27.8 balance points.

As in the SME sector, situation assessments and expectations have drifted apart among large enterprises as well. While their expectations improved considerably by 2.2 points to 5.5 balance points, their situation assessments fell slightly by 1.8 points to now 21.1 balance points. The downward trend in situation assessments, especially among exporters and large service providers, is most likely related to the weakening economic momentum of Germany’s trading partners.

The most recent improvement in the SME business climate is driven by a moderately positive development across all industries. The construction sector in particular, which has been booming over the past months, shows a sustained improvement in sentiment to a solid 41.1 balance points (+3.2 points). Manufacturing (+1.6 points to 14.8 balance points) and retail (+1.9 points to 14.5 balance points) are further pillars of the steady business climate in the domestic economy.

“Most businesses are in a positive mood and looking to the future with optimism”, said Dr Jörg Zeuner about the positive trend of the KfW-ifo SME Barometer in September. The Chief Economist highlighted the importance of keeping an eye on global risks. “The hardened trade conflict between China and the US can harm large German enterprises in particular. And a hard Brexit, which is currently an acute risk, would also be problematic for SMEs that rely on the EU internal market. Still, the strong domestic economy should drive Germany’s upswing further at a vigorous pace. I expect real growth of 1.8% for 2018 as a whole”, said Dr Zeuner.

The current KfW-ifo SME Barometer can be downloaded (in German only) from: www.kfw.de/mittelstandsbarometer.