The business climate among small and medium-sized enterprises in Germany ‘improved noticeably’ in July, according to the latest KfW-ifo SME Barometer.
As it noted, the SME business climate index rose by four points to -17.3 in July, boosted by ‘significantly better’ business expectations and a more positive assessment of current trading conditions.
However, despite this increase, the index remains ‘well below’ its long-term average, KfW-ifo noted.
‘Looking ahead’
“Small and medium-sized enterprises are looking ahead again,” commented Philipp Scheuermeyer, economic expert at KfW Research. “The mood has likely improved as a result of the reform program launched before the summer break, which demonstrated the governing coalition’s ability to compromise and promises significant relief, particularly regarding bureaucracy.
“Overall, however, the environment remains fragile: With exports from the Gulf region continuing to sluggish, the risk of a setback remains high, even if the economic data has been stable so far.”
Confidence improved across all major sectors of the economy, with manufacturing recording the largest increase, as the business climate index rose by 9.7 points. Retail and wholesale businesses also reported notable improvements, while more moderate gains were recorded in construction and the services sector.
Elsewhere, employment expectations among SMEs increased by 4.1 points to -7.4, indicating that businesses are becoming less pessimistic about future staffing levels.
In contrast, sentiment among larger companies was broadly unchanged. The business climate index for large firms edged down by 0.1 points in July. Although expectations improved slightly, this was offset by weaker assessments of current business conditions.
KfW Research said the gap in business confidence between SMEs and larger companies remained relatively small.
Government reform
The report suggested that the improvement in sentiment was likely influenced by the German government coalition’s reform programme, which includes ‘reducing bureaucracy, as well as the temporary easing of tensions in the Iran war’.
Price expectations fell for the third consecutive month, declining by 1.8 points among SMEs and by 6.6 points for larger companies. ‘This means that, after the third consecutive decline, price expectations are no longer significantly above the level before the Iran war,’ the researchers noted.
The monthly barometer, produced by KfW Research using data from the ifo Institute, is based on responses from around 9,500 companies, including approximately 8,000 SMEs across Germany. Read more here.
