The FINANCIAL — As in the previous months the KfW-ifo SME Barometer in October also indicated slowing dynamism, but there was no evidence of an economic decline.
On the contrary it is expected that the German economy will again grow slightly in the fourth quarter of 2012. The business climate for small and medium-sized enterprises declined for the eighth time in a row, namely by 1.1 points to 2.6 balance points. As KfW announced, this was principally due to a significant worsening in the estimates of the current business situation (-4.0 points to 14.5 balance points). Nevertheless, the assessments of the current situation remain well above average in historical comparison. Business expectations for the coming 6 months interrupted their downwards correction (+1.5 points to -9.3 balance points).
Developments in large companies hardly differed from those in SMEs. The business climate dropped by 2.3 points to -4.3 balance points, thereby indicating an above average business cycle. The assessments of large companies on the current situation declined considerably (-7.4 points to 6.7 balance points), while the prospects for the next six months are less pessimistic than they were in September (+2.2 points to -15.3 balance points). However, this slight recovery on the heels of the strong downward correction of the last months is too weak to spread to the overall business climate.
Due to the stable job market situation, private consumption is supporting growth in Germany. This is consistent with the business climate of retailers in both size categories which improved again in October. In particular the small and medium-sized retailers were significantly more upbeat than in September (13.8 balance points).
The cyclical situation in the construction sector also remains positive. Against the background of the euro crisis, low interest rates and the search for investments with stable value are boosting the attractiveness of housing construction. In August new orders for building construction were 17.6% higher than the previous year. Correspondingly the mood in small and medium-sized construction firms remains stable at a high level (15.9 balance points).
Times are less bright for the manufacturing industry which, being internationally very active, is strained by the recession in large parts of the euro area. The traditionally important German automobile industry in particular is facing an increasingly difficult environment (EU new car registrations in September: -10.8% compared to the previous year). The economic concerns of the industry have correspondingly increased (SMEs: -4.0 balance points; large enterprises: -8.4 balance points).
Development in the wholesale trade industry has been uneven. While SMEs reported hardly any change in the climate, the mood in large firms worsened.
In the view of surveyed enterprises, there is no indication that inflation is accelerating. On the contrary: enterprises in both size categories have further scaled back their sales price expectations (SMEs: -0.4 points to -1.6 balance points; large enterprises: -1.1 points to -3.9 balance points). Of positive note is the continuing stability in demand for labour. Despite increasing scepticism about the economy, employment expectations are weakening only slightly.
"The indicators of the KfW-ifo SME business climate show that domestic demand in Germany remains intact. However, the deep recessions in our European partner countries are increasingly affecting our globally interconnected economy. Thus, a weakening in the growth dynamics was unavoidable and the risks of economic decline remain high. Positive news regarding real economic development in the reforming countries is the key to a sustainable recovery. The ECB's Outright Monetary Transactions (OMTs) programme has increased the chances of this happening. Now it is important that the private sector in the crisis countries also again receives adequate funding in order to facilitate a return to positive rates of growth," said Dr Jörg Zeuner, Chief Economist of KfW.