KfW-ifo SME Barometer A hint of spring

• SME business confidence saw a strong upswing in February
• Expectations in particular improved
• Wide gap between sectors

Since the second wave of infections hit last autumn, SME business sentiment has fluctuated from month to month. While January saw businesses coming to terms with the stricter lockdown, February brought a hint of spring. SME business confidence saw another tangible upswing of 4.2 points, taking it to -10.1 balance points, as can be seen on the latest KfW-ifo SME Barometer. Business expectations in particular have improved, and after jumping 6.8 points now stand at a somewhat less pessimistic level of -8.9 balance points. Assessments of the current business situation are also slightly rosier; a moderate increase of 1.4 points brings them to -11.5 balance points.

Confidence among large enterprises has fluctuated even more than among SMEs. After falling steeply in the previous month, business confidence among these enterprises has now bounced back even more strongly (+5.8 points) than among SMEs. At -1.6 balance points it is now approaching the zero line again, which is the long-term average.

Since autumn, a wide gap has opened between services and retail businesses, which have been hard hit by restrictions, and construction and industrial firms. This applies to SMEs almost as much as to large enterprises. The robust upswing in business confidence among small and medium-sized enterprises continued in February. On the back of an improved business situation and significantly more optimistic business expectations, the SME business sentiment has improved by 3.0 points to -0.8 balance points. The business climate in the construction sector remained slightly above average, with an increase of 2.0 points. Among small and medium-sized retail businesses, on the other hand, only the hope of better times to come fuelled a moderate rise of 1.9 points in business confidence. While situation assessments declined again to -31.2, which is nearly as low as the level recorded during the first lockdown in April (-32.8), expectations are clearly improving. SME service businesses reported similar sentiment. Ultimately, the declining infection rates recorded during the survey period appear to have fuelled hopes of an imminent end to the lockdown. But with a view to mid-summer, which is included in the actual six-month scope of the survey, growing confidence in the success of the vaccination campaign could also be a factor.

“Although the improved SME business sentiment in February makes for a hint of spring, hopes of a swift end to the lockdown seem likely to be dashed in view of the rapid spread of the more infectious variants of the virus and the fact that infection rates are now only stagnating,” said Dr Fritzi Köhler-Geib, KfW’s Chief Economist. GDP is expected to shrink tangibly, given the long lockdown at the start of the year, although positive trends in the manufacturing sector, which has been able to largely decouple itself from the pandemic, should prevent a nosedive like the one we saw in spring 2020. “The second quarter should see solid growth even if the lockdown is eased only cautiously. But real relief for the sectors that have been hard hit by restrictions cannot be expected before the summer, once the vaccination campaign has made genuine progress. For this, and in the meantime it is up to the political level to take steps to prevent a third wave including targeted use of rapid antigen tests and effective contact tracing.”

You can consult the latest KfW-ifo SME Barometer at
www.kfw.de/mittelstandsbarometer