The latest KfW-ifo SME Barometer indicates a positive shift in business confidence among German small and medium-sized enterprises (SMEs), sparking hope for an economic turnaround. In May, the index rose by 2.5 points to -14.7 balance points, marking the third consecutive month of increase. Although it remains below the long-term average, this upward trend is seen as a signal of potential recovery.
Both components of the business climate index showed improvement. Situation assessments increased by 1.2 points to -16.7 balance points, reaching their highest level since July last year. Business expectations for the next six months saw a significant rise of 3.7 points to -13.2 balance points, surpassing situation assessments for the third month in a row—a pattern often preceding economic recovery.
All five main economic sectors where SMEs operate contributed to this positive sentiment with gains across the board.
Large enterprises also experienced improved sentiment, though less pronounced than SMEs and primarily driven by future expectations. Their business confidence rose by 1.8 points to -21.2 balance points, supported by a notable increase in expectations by 4.2 points to -13.9 balance points, while situation assessments dipped slightly by 0.7 points to -29.2 balance points.
A standout sector among large enterprises was construction, where sentiment turned slightly positive for the first time since February 2022 at +1.6 balance points—just above historical averages—driven by public-sector and below-ground construction projects benefiting from new infrastructure funding and favorable financing conditions due to European Central Bank measures.
Dr Dirk Schumacher, Chief Economist of KfW, commented on these developments: “Businesses of all economic sectors and size classes are slowly seeing light at the end of the tunnel... businesses are anticipating that viable compromises will be reached in trade policy negotiations.”
KfW continues to support SMEs through various promotional programs on behalf of the Federal Government.