KfW Research: KfW-ifo SME Barometer: SME business sentiment rose again for the first time since the spring

• Expectations and situation assessments picked up slightly in October
• Sentiment among large enterprises trended sideways
• Economy should be able to turn the corner in 2024

After five straight declines, sentiment among small and medium-sized enterprises (SMEs) in Germany finally improved again in October. It rose by 2.1 points to -17.1 balance points. According to the current KfW-ifo SME Barometer, this was driven by both improved situation assessment and more positive expectations. Specifically, situation assessments improved by 2.5 points to now -11.6 balance points, with the zero line representing the long-term average. Expectations improved by a further 1.8 points to -22.3 balance points in October, after rallying already in the previous month.

Sentiment is mixed in the main economic sectors in which SMEs operate. While confidence fell again among wholesalers and in construction and civil engineering, it rose in manufacturing, retail and services enterprises. While almost all segments reported more positive expectations, service providers were the only ones to report an improved business situation as well. The high share of service providers in the SME sector lifted the aggregate situation assessments across the overall SME sector.

In October there was little change in the mood of large enterprises. It fell by a minimal 0.4 points to -26.8 balance points but had already risen slightly in the previous month, as opposed to SMEs. Situation assessments and business expectations are diverging widely. While the former dropped by 4.2 points in October, expectations rose by 2.8 points.

“SME business sentiment turned the corner in October. This reinforces the impression that the economy is finally emerging from its trough”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“For now, however, it is mostly the expectations that are recovering. It therefore remains uncertain whether the minimal contraction of Germany's economic output in the third quarter will be followed by growth already in the current fourth quarter. But there is good reason to hope for an economic recovery next year on the back of household consumption, which rising real wages will boost sooner or later. As most European trading partners are likely to develop in a similar manner and global consumption will probably shift more towards merchandise again after the post-pandemic services boom, the conditions are there for renewed external demand as well as demand for industrial goods.”

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