German SME business sentiment sees slight dip amid mixed sector performance

Banking & Financial Services
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Sybille Bauernfeind Spokeswoman | KfW Group

Business sentiment among small and medium-sized enterprises (SMEs) in Germany experienced a slight decline in October, according to the latest KfW-ifo SME Barometer. The confidence level decreased by 0.5 points, reaching -19.7 balance points.

The Business Climate Index showed that six-month business expectations fell by 1.3 points to an eight-month low of -20.0 balance points. However, SMEs' assessments of their current business situation saw a minor improvement of 0.4 points compared to September, now standing at -19.7 balance points.

KfW Research analyzes the Ifo economic surveys for the KfW-ifo SME Barometer, categorizing results by company size and main economic sectors.

Some sectors defied the overall trend; wholesalers and the construction industry reported improved business sentiment, while retail confidence remained stable compared to September. This stability might indicate that the long-standing growth in household purchasing power is helping stabilize retail sentiment. In contrast, manufacturing sector sentiment dropped to its lowest since February due to weak domestic investment and subdued export demand.

Large enterprises displayed more positive sentiment than SMEs despite their business confidence being lower at -23.8 balance points. Notably, large enterprises' confidence rose by 5.6 points in October.

Dr Klaus Borger from KfW Research commented on these developments: “The German economy as a whole showed encouraging signs of life in October, this time coming from large enterprises.”

He further added: “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, he cautioned that potential threats include a sharper-than-expected deterioration in the labor market or significant changes in US tariffs on imported industrial goods following the presidential election.