KfW-ifo SME Barometer: SME business sentiment rallies somewhat

• Business situation and expectations have brightened slightly
• Sentiment among large enterprises has also improved
• Export-oriented firms are increasingly anxious

At a time of economic uncertainty and after the latest twist in the Brexit drama, Germany’s SMEs stand out with a positive news item. According to the current KfW-ifo SME Barometer, SME business confidence improved by 1.5 in March points to 8.1 balance points. This marks an end to five consecutive drops in sentiment. Both components of the indicator contributed to the rise in March. At 22.7 balance points, SMEs now rate their current business situation 1.4 points better than in the previous month. SMEs’ business expectations for the six months ahead rose 1.7 points to now -5.2 balance points.

Large enterprises were also not quite as pessimistic at the beginning of spring as they were in February. They slightly upgraded their situation assessments (+1.4 points to 8.3 balance points) as well as their expectations (+0.5 points to -10.4 balance points). At -1.5 balance points, however (+0.9 points), the business climate of large enterprises remains in negative territory and the gap to SMEs has widened again.

A look across the sectors reveals a widening gap in sentiment between domestic sectors (construction, retail and wholesale, services) and export-oriented manufacturers. Manufacturing is the only sector in which sentiment fell again significantly, slipping below the zero line in both size classes (SMEs: -2.2 points to -1.2 balance points; large enterprises: -2.9 points to -8.9 balance points). That makes large enterprises clearly the most pessimistic segment of the German economy at this time. By comparison, the business climate in the domestic sectors not only remained good but improved noticeably in the vast majority of segments.

“The March result of the KfW-ifo SME Barometer confirms the familiar picture. The external economy is a worry, but the domestic economy remains steady and stabilises Germany’s business cycle”, said Dr Jörg Zeuner, Chief Economist of KfW. “In addition to concern over global trade in general, fear of the immediate consequences of what may be a chaotic Brexit, which could loom as early as 12 April, is also playing an increasing role.” This fear can clearly be seen from SMEs’ export expectations, which went into a veritable tailspin in March. They dropped by three times the typical monthly variation among manufacturing SMEs (-5.6 points to -8.2 balance points) and even three and a half times that among large manufacturers (-11.8 points to -13.6 balance points). The last time enterprises rated their export outlook as poorly was during the euro crisis of 2012, and only during the severe global recession of 2009 did they rate it even worse.

The current KfW-ifo SME Barometer can be downloaded from

www.kfw.de/mittelstandsbarometer