KfW Research: KfW-ifo SME Barometer: SME business sentiment improved for the third consecutive month

• Expectations und situation assessments brightened in April
• Large enterprises were also more upbeat than in the previous month
• End of the cyclical trough has almost been reached

With the arrival of spring, sentiment among SMEs in Germany continued to brighten noticeably. Business confidence among SMEs picked up for the third consecutive month in April and now sits at - 11.3 balance points , up 5.2 points on the previous month. Both sentiment components improved, but the strongest change was the sharp decline in pessimism about the near future. Business expectations increased by a noteworthy 7.1 points to - 11.8 balance points. Situation assessments rose by 3.2 points to - 11.2 balance points.

SMEs from almost all main economic sectors reported improved sentiment. Construction SMEs experienced a particularly sharp rise in confidence (+ 5.9 points to - 24.0 balance points). Moderate improvements were reported by retailers (+ 1.3 points to - 8.8 balance points) and manufacturers (+ 1.3 points to - 22.2 balance points). After a very strong rise in the previous month, confidence fell slightly only among small and medium-sized wholesalers, leaving them at the bottom of the table (- 2.8 points to - 31.5 balance points).

Large enterprises also showed more optimism. Their business sentiment indicator improved by 2.3 points to - 17.3 balance points but remained below that of SMEs. Besides, the sentiment improvement among large enterprises rests on a rather narrow base, since the increases in two main economic sectors (services and wholesale) are tempered by declines – albeit minor ones – in the three economic sectors of manufacturing, construction and civil engineering, and retail.

“SME business sentiment rose for the third consecutive month, and the rule of thumb says that there has now been a shift towards more positive sentiment at least in this segment of the economy”,

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

“Overall, we are likely approaching the end of the cyclical trough. Both large enterprises and SMEs are now looking to the future with more optimism than they did at the start of the year. Compared with the long-term standard, the sentiment indicator levels remain subdued, to be sure, but they are going in the right direction. Hard economic figures such as production and wholesale turnover also support the positive trend, and at the end of April, Destatis even reported a rise in GDP in real terms for the first quarter, instead of the initially feared renewed contraction. This reaffirms my expectation that we will see a return to moderate economic growth across the year as a whole, which will then accelerate noticeably in 2025.”

The current KfW-ifo SME Barometer can be downloaded from:

KfW-ifo SME Barometer | KfW