Germany’s small and medium-sized enterprises (SMEs) are showing growing optimism about the near future, according to the latest KfW-ifo Business Climate Index. The index rose by 1.6 points in July to -14.2 balance points, marking the fifth consecutive month of improvement. While this figure remains below the long-term average, there are signs that economic recovery could be close.
The survey found that SMEs’ views on their current business situation were only slightly more positive than in June. However, expectations for the next six months improved significantly, contributing to the upward trend in sentiment. KfW analyzes data from ifo Institute’s economic surveys for its SME Barometer, which examines trends by company size and sector.
“Much indicates that the sentiment upswing in the German economy is more than just a flash in the pan,” said Dr Dirk Schumacher, Chief Economist of KfW.
He added: “The new Federal Government has the funds for a massive fiscal stimulus. For example, the newly created diminishing balance method of depreciation could provide a boost to business investment in plant and equipment already in the second half of the year. The increase in public-sector infrastructure investment and defence spending should then have a positive effect on the German economy by 2026 at the latest.”
Business expectations among SMEs improved across all major sectors during July, with manufacturing seeing the largest gains. Wholesale businesses also reported better expectations due to their ties with industrial activity.
Large enterprises also experienced an improvement in mood, as their business climate index increased by 1.3 points during July. Despite this rise, their overall score remains lower than that of SMEs at -19.6 balance points. Large companies continue to report weak assessments of their current situation, which may be linked to greater exposure to geopolitical events compared with smaller firms.
KfW continues to support SMEs through various promotional programs run on behalf of Germany’s Federal Government.