Confidence among German small and medium-sized enterprises (SMEs) continues to decline as the year comes to a close. The KfW-ifo SME Barometer reveals that the business climate index fell for the seventh consecutive month in December, dropping by 1.6 points to -22.1 balance points, which is significantly below the long-term average.
Despite a slight increase of 1.2 points in the situation assessment component of the index, reaching -20.6 balance points, six-month business expectations have worsened considerably. These expectations decreased by 4.2 points to -23.8 balance points.
The KfW-ifo SME Barometer evaluates data from ifo economic surveys based on company size and main economic sectors. The most significant decline in sentiment was observed among small and medium-sized industrial enterprises and their closely connected wholesale counterparts. Export expectations within the industry saw only a minor decrease, standing at -15.1 points, which is less pessimistic compared to overall business expectations in the industrial sector.
Large enterprises experienced a smaller deterioration in sentiment compared to SMEs in December. Their business situation assessments improved by 1.9 points; however, business expectations dropped sharply by 3.1 points, resulting in an overall decline of 0.6 points in their business climate index to -27.1 balance points.
Employment expectations are also declining for both SMEs and large enterprises, with many businesses planning job cuts, particularly manufacturers, wholesalers, and large retailers.
Dr Philipp Scheuermeyer from KfW Research commented on this trend: “The widespread news reports about layoffs in German corporations are weighing on sentiment. If well-paid jobs in industry are lost, loss of purchasing power or uncertainty among consumers could also spill over to other sectors.”
He further noted that "negative business expectations in practically all sectors are weighing on enterprises’ employment and investment plans."
KfW offers various promotional programs for SMEs on behalf of the Federal Government.