OREANDA-NEWS. The SME business climate trend gained further positive momentum in August, with sentiment among small and medium-sized enterprises in Germany improving for the fourth time in succession. With an increase of 3.0 points to the current level of 15.0 balance sheet points, the most recent rise was especially pronounced, on the back of an average gain of just 0.7 points on the previous three occasions. Both business climate components made an almost equal contribution to the improvement: assessments of the current business situation were up 3.1 points to 21.5 balance sheet points, while business expectations for the upcoming half-year were up 2.9 points to 8.2 balance sheet points.

Major corporations also had good news to report in August. With an increase of 2.8 points to 11.0 balance sheet points, large companies are now keeping closer step with small and medium-sized enterprises when it comes to the improvement in the climate. For major corporations with an international focus - which over the past two years have reported a more negative outlook across the board than SMEs - this is the highest climate level since May 2012; their expectation indicator even reached a 25-month high in August. This would seem to suggest that companies are increasingly counting on a recovery in the major export markets (for Germany, this is still Europe).

The current climate increase has a broad base across all sectors; the very strong plus recorded by wholesale - at the interface between the domestic economy and foreign trade - is especially impressive (medium-sized enterprises: +8.8 points to 18.1 balance sheet points; major corporations: +8.7 points to 11.8 balance sheet points). Sentiment is also brightening at an above-average rate in the manufacturing sector - a sector that is especially important for the German economy due to its strong exports. Meanwhile, the climate in the construction sector is deteriorating slightly, although this does not pose a problem following the temporary weather-related push in the spring.

“The allround strong August result posted by the KfW ifo SME Barometer has shored up our hopes for the economy: SMEs are also counting on a recovery, and the German economy has set its sights on expansion,” said Dr Jorg Zeuner, Chief Economist of KfW Group. “We anticipate that, going forward, alongside consumption and residential construction, exports and capital spending fuelled by higher levels of capacity utilization will start to make a stronger contribution to economic growth. To achieve this, we are reckoning not only on a continued stabilization in Europe, but also on the fact that the dramatic financial market reaction to the announced scaling back of the bond buyback program by the US will not bring economic momentum in the emerging markets grinding to a halt. The German economy should put on 0.6% this, followed by 2.0% in 2014.” In spite of the well-founded optimism, however, we should not ignore the risks. These first glimmers of light aside, the potential for setbacks remains high - especially in Europe.