KfW Research: KfW-ifo SME Barometer - Business sentiment among small and medium-sized enterprises dropped in June

• Second consecutive downturn in sentiment after revision of May data
• Large enterprises are also more pessimistic again
• Economic risks remain high

Sentiment among German SMEs fell slightly by 1.9 points to -13.5 balance points in June. After the result in May was revised from a minor increase to a slight dip, this is now the second straight decline. Both sentiment components declined, although business expectations fell more steeply (-3.3 points to -15.3 balance points) than assessments of the current business situation (-0.3 points to 11.8 balance points). At the same time, however, situation assessments were 4.1 points higher on average in the second quarter than in the first quarter, which indicates sustained economic growth in the spring.

A look at the individual sectors reveals that sentiment among SMEs is currently divided. It has fallen in the manufacturing sector (-4.7 points to -21.0 balance points), wholesale (-5.1 points to -29.5 balance points) and retail, where the decline was particularly steep and rather unexpected given that the conditions for an economic rebound are still intact (-8.9 points to -14.8 balance points). By contrast, business sentiment among services rose by 1.6 points in June and, at -4.5 balance points, is now on the highest level in a year. Sentiment continued to brighten in the main construction industry as well. After an increase of 1.1 points, sentiment there now sits at -20.2 balance points, which is likewise the highest level since June of last year.

Sentiment in June followed a disappointing trend among large enterprises, too. Their business confidence fell by 1.6 points to -19.9 balance points, which was again noticeably lower than that of SMEs. However, there is a striking divergence between situation assessments and expectations. The latter rose by 3.6 points to -14.3 balance points, showing that large enterprises remain slightly less pessimistic about the next six months than SMEs. By comparison, situation assessments improved moderately while remaining well below the level of SMEs (+0.5 points to -26.2 balance points). As is the case in SMEs, the sector comparison reveals a mixed trend. While sentiment was much better in the services sector and slightly better in manufacturing than in May, it deteriorated more or less significantly in the other economic sectors. Confidence literally plummeted among wholesalers. Enterprises in this sector shed almost all gains from the previous month and dropped to the bottom of the sentiment table again.

“The hoped-for economic recovery remains very uncertain. The sentiment rebound has stalled, and the expectations component of the business sentiment index dropped in both enterprise size classes, presumably because the risks to the business cycle remain high”,

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

“Among these risks are the increased support for populist parties in Germany and abroad, as shown by the European elections at the beginning of the month. Populism could have a longer-term negative impact on an export-oriented country such as Germany in particular. Furthermore, the current uncertainty could be associated with the unexpectedly called parliamentary elections in France, the outcome of which was still entirely unclear during the survey period. The outcome of the US presidential elections in November will be at least as relevant. This fits in with the fact that this time it was wholesale, the sector situated at the interface between domestic and foreign markets, that recorded the steepest drop.”

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

KfW-ifo SME Barometer | KfW