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Press Release from 2021-02-09 / Group

KfW-ifo SME Barometer: SME business confidence drops sharply in current lockdown

  • Retail in freefall, services even more negative in January than in previous month
  • Only manufacturing is able to decouple from pandemic activity
  • Germany’s economic output is set to contract significantly in the first quarter

The long lockdown is impacting on Germany’s small and medium-sized enterprises and weighing on sentiment, as shown by the current KfW-ifo SME Barometer. SMEs business sentiment was down 4.2 points to -14.8 balance points in January. Despite the notable decline, however, confidence is still nowhere near the record low recorded during the first lockdown (-42.5 balance points in April 2020). Situation assessments (-5.3 points to -13.0 balance points) and business expectations (-3.1 points to -16.6 balance points) are both currently down. Factors that likely contributed to pessimism were uncertainty about the end of the lockdown and disappointment in the slow pace of the vaccine rollout in Germany and the EU.

Small and medium-sized retailers are hit harder than all other sectors. Their business sentiment literally nosedived to -27.5 points, as most shops have had to remain closed already since mid-December. And given the rather slow decline in infection rates it is unclear when they can reopen. Moreover, the end of the temporary VAT reduction has likely been weighing on turnovers since the start of the year. Still, at now 26.7 balance points, business sentiment among SME retailers remains well above the low of April last year (-42.3 balance points). In the meantime, sentiment among small and medium-sized service businesses fell by 3.4 points to -23.6 balance points. The segment already experienced the sharpest drop in confidence in autumn. Comprising hospitality, entertainment, culture, sport and personal services, it does, after all, include the sectors that have already been directly impacted by a lockdown since the beginning of November. SME wholesalers (-4.4 points to -13.1 balance points) and the construction and civil engineering sector (-5.8 points to 1.7 balance points) also reported a drop in confidence in January. SME manufacturers were the only ones to succeed in decoupling from the broad negative trend, reporting a slight improvement in confidence (+0.8 to -4.1 points).

After business sentiment in large enterprises developed more positively than in small and medium-sized businesses since autumn, disillusionment got the better of them as well in January. Confidence among large enterprises fell more sharply than among SMEs (-5.5 points to -7.7 balance points). Almost all economic sectors saw a decline in confidence, especially large retailers and service enterprises. Construction was the only sector that experienced a slight improvement. Sentiment among large manufacturers stagnated for the first time since the rebound began in May.

“The KfW-ifo SME Barometer shows a bad start to the year and growing pessimism among the majority of small and medium-sized enterprises”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Compared with last spring, however, sentiment in the sectors affected by the restrictions is at least no longer dropping quite as low. Adaptation measures such as the introduction of contactless sales channels are likely to pay off. Most of all, however, the manufacturing sector appears to have decoupled from the pandemic activity, so that gross domestic product will contract much less in the current quarter than last spring. But the spread of virus mutations has created great uncertainty about the further course of the pandemic. Nevertheless, an economic recovery can be expected in the spring. The extent of the rebound, however, will depend heavily on progress in vaccine rollout and the success of the current lockdown”, summarised Köhler-Geib.

The current KfW-ifo SME Barometer can be downloaded from: www.kfw.de/SMEBarometer