KfW-ifo SME Barometer: Small and medium-sized enterprises are putting up a brave fight

• SME business sentiment improved for the third consecutive month in April
• Situation assessments and expectations have risen
• Hope for recovery in second half of the year is growing

The ongoing third coronavirus wave continues to make tight lockdowns necessary, and although the vaccination programme is picking up pace there is still a long way to go before broad sections of the population will have been immunised. At the same time, the global economy is clearly recovering, driven by the powerhouses US and China. The current KfW-ifo SME Barometer shows that in an environment marked by contradictory signals, SMEs are putting up a good fight. Their business sentiment rose by 1.4 points to -0.3 balance points – the third consecutive increase. Business situation assessments climbed 1.3 points to -4.2 balance points. Business expectations improved by +1.7 points to 3.3 balance points, the highest level in two years.

Sentiment improved further among large enterprises in April as well, if only marginally (+0.3 points to 6.9 balance points). This time, the sole drivers were the improved assessments of the current business situation, which increased by 6.8 points to 4.8 balance points, rising above the zero line again for the first time since June 2019. Large enterprises’ expectations fell by an almost equally strong 6.2 points to now 13.9 balance points. With expectations rising by a near-record rate of more than 14 points to a ten-year high in the previous month, this should be regarded as a consolidation in which production disruptions resulting from shortages of important supplies such as semiconductors are likely to have played a role.

Across the individual sectors, it is apparent that businesses with a pronounced orientation to international markets are the most optimistic. The global economic recovery will benefit them in a particular way. Export-oriented manufacturers thus top the sentiment leaderboard far ahead of the rest. Sentiment among SME manufacturers climbed by 3.8 points to 10.6 balance points and among large manufacturers by 1.5 points to 21.3 balance points. The global economic recovery is also bolstering wholesalers (SMEs: +2.3 points to 1.8 balance points; large enterprises: +5.5 points to 9.3 balance points). The domestic sectors sent out mixed signals on sentiment in April. What is encouraging is the continuing improvement in sentiment among retailers despite continuing restrictions (SMEs: +3.8 points to -3.9 balance points; large enterprises: +3.8 points to 5.0 balance points). Sentiment in the services sector, on the other hand, dropped further on what was already a below-average level (SMEs: -2.4 points to -14.0 balance points; large enterprises: -0.4 points to -3.1 balance points). In the construction and civil engineering sector, which is complaining about supply shortages in the same way as the manufacturing sector, sentiment also dropped in April (SME: -1.4 points to 7.5 balance points; large enterprises: -2.1 points to -1.7 balance points).

“SME business sentiment improved for the third consecutive month in April, and the traditional rule of thumb is that this signals the beginning of an upswing”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Businesses are looking to the future filled with hope, and more and more of them are anticipating a successful containment of the pandemic and a recovery later in the year. The chances of this hope turning into reality are good – provided new infections are consistently contained and vaccinations continue to pick up pace. Then Germany can experience a strong growth spurt in the second half of the year on the back of catch-up effects in currently banned services and in the retail sector. Manufacturers’ order books are already filled to the brim.”

The current KfW-ifo SME Barometer can be downloaded from
www.kfw.de/KfW-ifo-SME-Barometer-(EN)