OREANDA-NEWS. The business climate among small and medium-sized enterprises improved in February from 6.1 points to 16.4 balance points. In its 100th issue the KfW-ifo SME barometer showed the third highest increase in the business climate since the beginning of the series. The impulses are emanating from both components. Business expectations are virtually exploding after two strong increases in the previous months and currently have improved by 8.8 points to 12.2 balance points. Only one time since German reunification has such a high increase in expectation been achieved. In contrast, the sound improvement in the assessments of the current situation seems almost modest (+3.4 points to 20.3 balance points).

"The very clear improvement in business climate and expectations in the SME sector is pleasing and confirms our positive forecast for the economy. Already in the first quarter the German economy will grow soundly again," said Dr Jorg Zeuner, Chief Economist of KfW. At the same time, we need to maintain a grip on reality. Very strong increases in expectations over a short period harbour some potential for setbacks if disappointments arise. "The enterprises will have to realise that the recession in the Euro area will continue to have a braking effect for some time and the policy mix in the reforming countries does not allow for very great expectations for the European economy. In addition, the difficult election results in Italy bring up new questions."

Along with the SMEs, in February large enterprises also assessed their business situation (+3.3 points to 12.3 balance points) and their expectations (+5.1 points to 4.8 balance points) more favourably than in the previous month. Their business climate improved by 4.2 points to 8.8 balance points. By itself this is a good result but fades somewhat when measured against the vigorous improvement in sentiment in SMEs and which again widens the gap between both size categories after it had recently closed somewhat. The more cautious optimism of large enterprises is understandable. Economic risks are currently primarily coming from the global economy and Europe, and export-oriented large enterprises would feel these firstly and most strongly.

The current good mood, as the KfW-ifo SME barometer finds, is based on a broad foundation. Besides the large retailers, which are experiencing volatility due to the mood, across all sectors the climate has improved. The increases are particularly strong in the manufacturing industry, wholesale trade and construction, which are key to economic growth. The SME business climate in the building industry climbed to 32.5 balance points, thereby reaching a new all-time high that even exceeded the very good mood at the time of the construction boom after reunification.