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Press Release from 2020-12-30 / Group

KfW-ifo SME Barometer: SME business confidence was steady before the lockdown.

  • Sentiment was improving among both SMEs and large enterprises
  • But most businesses were surveyed before the hard lockdown was announced
  • Worsened pandemic situation makes economic contraction in the first quarter more likely

In the first half of December, SMEs were still relatively unimpressed by rising new infections and the associated debate about a tougher lockdown. SME business sentiment rose 1.4 points to -10.6 balance points. However, the specific closure of child daycare centres, schools and many stationary retail shops until at least 10 January, which have been in effect since 16 December, was not yet known when most of the responses on business sentiment were returned. Assessments of the current business situation, in particular, are improving. After rising by 2.5 points, situation assessments are now at -7.8 balance points. That increase more than offset the minor drop in November. But SMEs’ expectations are improving only minimally (+0.4 points to -13.7 balance points). At the same time, the positive outlook for an easing of the situation in the medium term through the use of effective vaccines and a more subdued view of the coming months should neutralise each other.

Before the lockdown, sentiment among large-scale enterprises improved even more strongly than among SMEs. With a clear increase of 4.7 points to -2.4 balance points, business sentiment moved closer to the zero line, which stands for the long-term average. Remarkably, not only is confidence continuing to improve in manufacturing (+3.8 points), but also rising again noticeably among large service providers after the setback in November (+5.7 points). Most of this rise is likely coming from business-related service providers such as transport and logistics companies.

In the SME sector it was again manufacturing which improved most in December. Business confidence here improved by 3.3 points, and export expectations also rose substantially. The upturn in manufacturing is proving to be very robust, having likely received additional impetus in December from the cautious easing of lockdown restrictions at some European trading partners. But it was particularly the high backlog of orders and demand from outside Europe that have supported the upturn in manufacturing for some months now.

Strong growth in manufacturing was probably the main factor that largely stabilised gross domestic product in the final quarter. In the second half of December, economic output is then likely to have dropped significantly, especially as a result of business closures, but also because some businesses extended their company holidays. “As many enterprises are already closing for the Christmas holiday period, the losses for the economy as a whole from a ‘rampdown’ until early January will be only moderate. The worsened pandemic situation increases the likelihood of a decline in gross national product in the first quarter, particularly if the measures fail to have the desired effect and the hard lockdown hence were to be extended”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “But stronger economic downward risks will emerge only if, for example, the mutated variant of the virus makes additional containment measures necessary and industrial production and construction activity decline as a consequence. Still, there remains good reason to hope for broad deployment of highly effective vaccines and the experience of last summer’s rapid recovery. Even if the economy should now contract a bit more in winter, an even stronger catching-up movement should then be expected from spring.”

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


Portrait Christine Volk


Christine Volk


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