Worry lines among SMEs are deepening, warns KfW

Sentiment among Germany’s small and medium-sized enterprises has begun to sour as they face a second coronavirus wave, the KfW-ifo SME Barometer for October has revealed. 

Containment measures in October were still moderate and mostly local, and they hardly disrupted business activity, but tighter restrictions were already foreseeable given the rapid spike in new infections. 

As a result, SME business confidence fell by 0.4 points, mostly because of SMEs’ lower expectations. With a decline of 1.8 points to -5.7 balance points, the drop in expectations among SMEs remains moderate overall. By contrast, their business situation assessments improved slightly in October (+0.9 points to -9.6 balance points) but remained well below the pre-crisis level. 

Large enterprises’ situation assessments and expectations moved even more strongly in the opposite direction. Their business assessments improved noticeably by 6.6 points to -16.6 balance points, while their expectations dropped sharply by -7.4 points. On balance, large enterprises’ business sentiment changed only minimally (-0.2 points to -6.3 balance points). 

A look across the sectors shows that confidence levels in manufacturing remained on an upward trajectory in October. Business sentiment continued to rebound in large companies as well as SMEs (+3.8 points to -6.4 and +3.1 points to -8.1 balance points). Export-oriented manufacturers in particular are likely to be benefiting from the strong recovery in China and the US. However, the rise in sentiment in both size classes of the manufacturing sector is exclusively due to improved situation assessments. Weakening business and export expectations, especially among large industrial firms, point to slowing momentum.