OREANDA-NEWS. Confidence returned to German SMEs in June. The business climate, the main indicator of the KfW-ifo SME Barometer, improved for the second consecutive month, this time by 0.5 points to 11.7 balance points. As in May, the improvement is only moderate but, unlike in the previous month, it is the business expectations that sustain the recent rise (+1.6 to 5.1 balance points). This is a good sign because only when enterprises assess their future business more positively are they also willing to invest and create new jobs. Their assessments of their current business situation, in turn, declined only minimally by 0.6 points to 18.0 balance points in June - despite the devastating flood in southern and eastern Germany.

“The renewed rise in sentiment among SMEs is a welcome trend and cannot be taken for granted given the flood damage, the recession in the eurozone and the recent, rather disappointing economic indicators from China”, commented Dr Jorg Zeuner, Chief Economist of the KfW Group. It confirms our expectations that the German economy will gradually recover in the further course of the year.

Sentiment among large-scale enterprises is also rising - even more strongly than among SMEs. In June they assessed their current business situation slightly better than in May (+0.7 points to 12.1 balance points) but rated their business expectations even more positively (+3.7 points to 5.5 balance points). Their business climate improved by 2.2 points to 9.0 balance points and is now only around three points below the business climate of SMEs. For the first time in two years, large enterprises' business expectations are even slightly higher than SMEs'.

The last time the expectations indicator of large enterprises with a strong international focus was higher was in July 2011. This shows that they are increasingly expecting exports to recover.

This trend is consistent with the broad improvement in sentiment among the export-oriented manufacturing sector. The business climate improved both in large-scale manufacturing (+1.6 points to 8.7 balance points) and among manufacturing SMEs (+2.1 points to 9.1 balance points). Manufacturing is thus increasingly becoming a beacon of hope for recovery. In a sector comparison, manufacturing sentiment now ranks second - after construction, which continues to lead by a wide margin despite the dip among the large builders.

Zeuner: The improved sentiment among exporters shows that companies are seeing signs of stabilisation in the eurozone and rating them more highly than the risk of falling demand in China.”