KfW-ifo SME Barometer: SMEs are hoping for better times

• SME business confidence surges again
• Expectations have increased much more than situation assessments
• Significant risks of sharp downturn on path to recovery

The low number of new coronavirus infections and the resulting easing of restrictions combined with strong economic-policy stimulus measures have led to a rapid surge in German SMEs’ sentiment at the beginning of summer. The 13.8-point jump in June marks the second consecutive record increase. But SME business confidence still remains far below its pre-coronavirus pandemic level, at now -20.7 balance points. The current increase is mainly driven by hope for better times. Business expectations rose 20.7 points to -15.0 balance points. Business situation assessments, in contrast, saw a rather hesitant 6.5-point recovery to -26.7 balance points in June.

Large enterprises also believe that the very worst is now over. Their business confidence also jumped for the second consecutive month in June (+15.6 points to -26.3 balance points), even surpassing the level of SMEs slightly. While large enterprises reported noticeably more modest increases in their situation assessments (+4.2 points to -49.0 balance points), their business expectations were up even more sharply than those of SMEs, surging to the highest level in one and a half years in one fell swoop (+27.8 points to -3.3 balance points). This explosion of optimism is encouraging, but with the pandemic accelerating in many countries outside Europe, internationally operating enterprises in particular must anticipate setbacks as well, especially as risks such as US trade conflicts and the uncertainties of Brexit have not yet been eliminated.

The continuing difficult situation of large-scale exporters in particular is illustrated by the fact that despite a clear increase – driven solely by expectations – their business sentiment is still the weakest of all segments captured in the KfW-ifo SME Barometer (+13.5 points to -38.4 balance points). SME manufacturers show a similar picture, although their business confidence has not been quite as low as that of large industrial firms since the outbreak of the crisis (+12.7 points to -28.4 balance points). Confidence also climbed in all other sectors of the economy in June. Small and medium-sized construction firms stood out as the only ones to report a slight rebound in business confidence (+4.9 points to 1.7 balance points). Business confidence among SME retailers at least approached the zero line again, which represents the long-term average level. After shops reopened it rose by +21.0 points, again more than any other sector, to now -1.2 balance points.

“The trough of the recession which hit Germany, Europe and the world without warning as a result of the coronavirus pandemic now lies behind us with the second quarter. The June findings of the KfW-ifo SME Barometer demonstrate that businesses are climbing out of the deep cyclical low step-by-step”, commented Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Germany’s economy likely saw a nearly double-digit percentage fall in output from April to June, and it is now back on the path of recovery. But it is a narrow path where risks of renewed collapse lurk in spite of massive economic protection measures”, Köhler-Geib added. “The local increase in new infections demonstrates impressively how dangerous the virus still is, not just globally but in Germany as well. Let us hope that such local virus outbreaks can be contained in time with local quarantining and lockdown measures before they can spread. “It is crucially important that we remain vigilant and maintain discipline in complying with hygiene rules to prevent a renewed economic setback from a second wave of infections."

The current KfW-ifo SME Barometer can be downloaded from: KfW-ifo SME Barometer