Spring awakening for SMEs

• First signs of improved sentiment this year
• Cheaper oil prices, a weak euro and signs of recovery in the euro zone generate optimism in April
• Rail strike will have a negative impact upon sentiment and growth in Q2

At the very start of spring, SMEs — that have been rather sceptical for quite some time — once more show signs of optimism: as demonstrated by the latest KfW-ifo SME Barometer, in April the SME business climate improves considerably for the first time this year, reaching 14.8 balance points (+1.9 points). This takes into account the improved sentiment among SMEs, the evaluation of the current business situation (+1.9 points to 22.6 balance points) and business expectations (+2.0 points to 6.9 balance points).

Large German companies enter Q2 on a positive note — a plus of 1.2 points to 15.1 balance points for business climate. The large companies are more satisfied in April, although only with current business: the situation indicator improves by 6.7 points or double that of a usual monthly adjustment, reaching a three-year high of 25.8 balance points. On the other hand, business expectations fall by 4 points to 4.4 balance points. In light of the strong orientation of large companies towards foreign trade, this underlines the fact that German exports in 2015 are indeed performing well, however despite good overall conditions such as the emerging recovery in the euro zone and the cheaper euro, growth is limited.

“Cheaper oil prices, a weaker euro and increasing signs of recovery within the euro zone all benefit the German economy — and this tailwind is eventually catching up with SMEs in April,” says Dr Jörg Zeuner, Chief Economist at KfW. “I estimate that the German economy will grow between 1.5 and 2 percent this year.” However, the record-long rail strike that will undoubtedly have a negative effect upon sentiment poses a certain element of risk. “In light of just-in-time production and the hugely important role that rail plays in the transportation of goods, the strike will also hinder growth to a certain extent in Q2,” continues Zeuner.

The labour market is and will remain a main pillar for a good economy in 2015. The newly introduced minimum wage appears to be slowing down recruitment only in certain regions and sectors — in April, the KfW SME Barometer confirms that the declining employment plans in Eastern Germany and the SME retail sector are noticeably behind the national average. However, this does not show at the overall economy level. “SMEs and large companies are planning to expand employment this year. In 2015 we are expecting a new record of around 43 million employed people and a further drop in unemployment,” explains Zeuner.

The current KfW-ifo SME Barometer can be viewed at

www.kfw.de/mittelstandsbarometer