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Press Release from 2020-10-01 / Group

KfW-ifo SME Barometer: SME business confidence continues to rise

  • Sentiment improved for the fifth consecutive month in September
  • Confidence levels rose in large companies as well
  • Increase in new infections a growing obstacle for further economic recovery

At a time when new coronavirus infections in Germany and Europe are on the rise, sentiment in Germany’s SME sector is showing signs of calming down. In September it improved for the fifth consecutive month to now -6.8 balance points (+3.1 points). The improvement was sustained by both sub-components of the indicator. Business expectations rose by a moderate 1.8 points to -3.4 balance points. So although prospects have brightened, the outlook for the coming six months remains below the long-term average. Business situation assessments, however, continued the clear upward trend of previous months and improved by 4.2 points to -10.6 balance points. On average from July to September, they rose by a historically unprecedented 15.4 points on the previous period, underscoring the prospects for record growth in the third quarter.

Sentiment among large enterprises improved by 3.2 points to -5.6 balance points. As the mood of these companies has been very subdued for a long time, the most recent rise has now been enough to lift their business sentiment not just above the pre-crisis level but to the highest in the past 15 months. But this is exclusively due to now notably optimistic expectations (+0.2 points to 11.9 balance points), while situation assessments remain a good 20 points lower than at the start of the year despite a further noticeable increase (+5.9 points to -23.3 balance points).

A look at the sectors reveals that manufacturing, which has been far behind in recent months, is working its way out of the trough in both size classes. Manufacturing SMEs reported a strong 6.0-point improvement in business confidence to -10.7 balance points, and large manufacturers posted a similar increase (+5.6 points to -10.0 balance points), accompanied by a significant improvement in export expectations. The manufacturing sector has thus relegated small and medium-sized service providers, where sentiment improvements have nearly come to a halt, to the bottom of the table (+0.9 points to -11.4 balance points). That is definitely a very clear reflection of the fear of rising new coronavirus infections. After all, the very heterogeneous services sector comprises many enterprises of already reeling segments such as hospitality and entertainment, particularly small businesses, which would be severely affected by renewed restrictions, at least on the regional level. Sentiment among SME retailers (-0.1 points to 8.3 balance points) and, above all, construction (+4.7 points to 13.0 balance points) has remained above average and better than in other sectors.

“The current KfW-ifo SME Barometer highlights the continuing rise in confidence levels in September as well, which is certainly good news that can allay excessive fears of an economic setback”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Nevertheless, the renewed, considerable increase in the number of new coronavirus infections is becoming a growing obstacle for the economy as the cold season begins. The health response and economic support measures must now focus on ensuring that the economic rebound will still continue at a satisfactory pace even after the foreseeable record growth in the third quarter. To a large extent, the German population itself holds the key to preventing renewed large-scale lockdowns by being sensible and considerate, and by consistently complying with infection-control regulations. What is raising growing concerns, however, is the spread of infections in many other important countries around the globe – particularly with a view to the domestic export industry and its focus on cyclical capital goods”, said Köhler-Geib.

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