The FINANCIAL — As in previous months, sentiment among SMEs was good in April but dropped slightly.
The business climate, the main index of the KfW-Ifo SME Barometer, fell by 2.2 points to 18.7 balance points against March, which is slightly more than an average monthly variation. It is the first significant decline after the indicator had practically stagnated in the previous month and had risen even vigorously four times in a row despite global economic worries. Small and medium-sized enterprises corrected downward not only their assessment of the current business situation (-3.1 points to 30.3 balance points) but also their business expectations for the six months ahead (-1.3 points to 7.1 balance points). Both components of the business climate, however, remained comfortably above the zero line, which conceptually stands for the long-term average since Germany's unification. The assessments of the business situation in particular remain on an extraordinarily high level in a long-term comparison.
By contrast, large enterprises expressed considerably greater optimism than in the previous month. Their business expectations increased by 2.6 points to 3.2 balance points. This is already the fifth consecutive monthly increase. As they also corrected their situation assessments upwards by a significant +2.3 points to 33.6 balance points, their business climate has increased by 2.4 points to 18.2 balance points in total. This shows that for the first time since July 2011 sentiment among large enterprises in April was nearly as positive as among SMEs, after their business climate indicator had dropped significantly below the comparison figure for SMEs in the winter half-year.
According to KFW, in the segment of large enterprises, manufacturing companies were the only ones to contribute to the improved climate. Their business climate increased by a substantial 5.9 points – double the usual monthly variation – to 19.0 balance points. Given the huge importance that global demand has for the economic condition of Germany's large enterprises, this allays the concern often raised lately over an excessively pronounced cooling of the world economy. In the SME sector, retailers were the only ones to report improved sentiment. Their business climate improved by 1.4 points to 26.8 balance points, rising to the top level in a comparison between industries and business size categories.
Chief Economist of KfW Bankengruppe Dr. Norbert Irsch commented: "The slight drop in business climate among SMEs is no reason to call into question the cautiously optimistic image we have drawn for the economy in the current year (price and calendar adjusted GDP for 2012: +1.2%). The mood remains good, and the strong improvement among large enterprises gives reason to hope that economic burdens from foreign trade will remain limited. The very good climate among small and medium-sized retailers underscores yet again that the domestic market has become a solid pillar for the economy. In spite of the dip in the SME business climate, the medium-term trend in all industries and size categories continues to point upward, with only the hiring plans of enterprises now stagnating at a higher level. In this situation, higher increases in real wages can help to further strengthen domestic demand after overall purchasing power had thus far largely drawn its momentum from the increase in the workforce. The scope of income distribution in pay settlements for the economy as a whole, which we see at around 3½% per annum, should be used but not overdrawn. This will bolster domestic demand while increasing imports, thus making the adaptation processes in the Eurozone easier without jeopardising price competitiveness."
