The recent report from KfW Research indicates a notable increase in the business climate among German small and medium-sized enterprises (SMEs) for March. The business climate index rose by 3.9 points, reaching -17.6 balance points. This increase, while still below the long-term average, reflects an upward movement 1.5 times the usual monthly variation.
The report attributes the positive trend to the improved six-month business expectations of SMEs, which increased by 7.4 points to -15.9 balance points, representing 2.3 times the average variation. Meanwhile, current situation assessments showed only a slight rise, with a 0.3 points increase to -19.7 balance points.
These insights come from the KfW-ifo SME Barometer, which analyzes the ifo economic surveys by company size and economic sector. According to Dr Philipp Scheuermeyer, an economist at KfW Research, "It is true that the fiscal package put together by the Christian Democrats and the Social Democrats did not provide such a massive boost in sentiment among SMEs in Germany as it initially did in the financial market. But the improvement in expectations does indicate it has been received favourably."
However, Dr Scheuermeyer warns that the ongoing improvement in sentiment could be threatened by the tariff increases announced by the US. He notes that "Even if most German SMEs are more focused on the domestic market than large enterprises, they will also feel the tariff increases through their relationships with suppliers and service providers."
Sentiment among large enterprises also rose in March, with a 2.0-point increase to -24.1 balance points. The construction industry witnessed the largest improvement, benefiting from higher upcoming infrastructure expenditures, particularly large underground construction firms. Among SMEs, there was a notable rise in the services sector sentiment by 6.0 points, with architecture and engineering firms likely to gain from increased infrastructure investment.
The KfW-ifo SME Barometer provides a comprehensive analysis of the current economic climate and offers insights into Germany’s economic future. The position paper, “Managing the transition, strengthening growth,” further explores these topics and is available for download.