KfW Research: SME business sentiment dipped slightly in October

• KfW-ifo SME Barometer indicates further decline in business expectations
• SMEs assessed their situation slightly more positively than in the previous month
• Mood among large enterprises brightened considerably

Business sentiment among small and medium-sized enterprises in Germany continued to worsen in October. However, the confidence level fell by only a very moderate 0.5 points to now -19.7 balance points.

Within the Business Climate Index, six-month business expectations dropped by 1.3 points to an eight-month low of now -20.0 balance points. At the same time, SMEs' assessments of their current business situation improved by 0.4 points on September to now -19.7 balance points. Historically, this is still a very low level. Negative indicator values signify below-average economic performance.

KfW evaluates the results of the Ifo economic surveys for the KfW-ifo SME Barometer, broken down by company size classes and main economic sectors.

But there were some bright spots, too. Bucking the general trend across the SME sector, business sentiment improved among wholesalers and, albeit slightly, in the construction industry. Confidence among retailers stagnated compared with September. This may signal that the growth in household purchasing power, which has been strong for quite some time now, is gradually causing the downturn in retail sentiment to bottom out. In contrast, sentiment in the manufacturing sector fell to the lowest level since February. Weak domestic investment activity and subdued export demand are weighing on SME manufacturers.

Sentiment among large enterprises was much more positive than among SMEs. To be sure, their business confidence continues to be lower than that of small and medium-sized enterprises, at -23.8 balance points, but rose by 5.6 points in October, more than twice the typical month-on-month variation.

“The German economy as a whole showed encouraging signs of life in October, this time coming from large enterprises”,

said Dr Klaus Borger, economic expert at KfW Research.

“The noticeable growth in household purchasing power and the start of the global interest rate reduction cycle have laid the groundwork for an economic recovery in 2025. However, if the labour market deteriorates more sharply than expected, or if US tariffs on imported industrial goods are lifted significantly after the presidential election there, that could threaten the economic recovery.”

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

KfW-ifo SME Barometer | KfW