OREANDA-NEWS. October 18, 2012. Despite the bond purchasing programme announced by the European Central Bank at the beginning of the month, the mood in the German economy has again worsened in September. The business climate among SMEs decreased by 2.2 points to 3.7 balance points, meaning the most important indicator of the KfW-ifo SME barometer declined for the seventh time in a row. The assessments of the current business climate (-1.7 points to 18.6 balance points) and the expectations for the coming six months (-2.5 points to -10.8 balance points) contributed about equally to this result.

The business climate at large firms also continued to decline in September, namely by -2.2 points to -1.9 balance points. As a result, the overall business climate of large firms slipped below the zero line for the first time since February 2010. The noticeably worse sentiment compared to SMEs is likely due to the stronger international integration of large enterprises in particular. Thus they are directly affected by the global slowdown and the recession in many countries of the euro area. In contrast, the SME sector, which across the board is more strongly oriented towards the domestic market, is benefiting from continuing robust domestic demand in Germany and particularly from the strong upward trend in private consumption and housing construction.

The German labour market is expected to move sideways with relatively high employment and an unchanged unemployment rate. In the future, economic impulses for domestic demand must mainly come from the development of wages and no longer from increases in employment. Employment expectations (SME sector: -0.9 points to 5.9 balance points; large enterprises: -2.5 points to 6.2 balance points) dropped again in September. Sales price expectations were also weaker across both company size categories (SMEs: -0.9 points to -1.2 balance points; large enterprises: -1.3 points to -2.8 balance points). For over a quarter of a year they have kept to below the long-term average and are not showing signs of inflationary pressure.

"Germany is facing an economic test in the autumn and winter. The gap between the above-average positive assessment of the current situation and the poor expectations for the coming months has seldom been so wide. In the coming months we expect a turnaround in business expectations. The easing of the euro crisis initiated through the bold bond purchasing programme, the initial positive signals from the American labour and construction markets and possible loosening of monetary and fiscal policy in many emerging economies should soon again elevate the mood. Foreign orders in the industrial sector had already stabilised in July and August. In 2013 we expect real growth in Germany of about 1.5%," said Dr Jorg Zeuner, Chief Economist of KfW.