OREANDA-NEWS. The improvement in the business climate among SMEs over the previous four months did not continue in September. The business climate among small and medium-sized enterprises, which is the largest indicator in the KfW-ifo SME Barometer, decreased by a modest 0.7 points in September to 14.3 balance points. Nevertheless, various factors suggest that further economic recovery can be expected despite this slight consolidation in sentiment:

The fall is not only very small - less than one-third of the typical month-on-month change - but also reverses only a small part of the strong increase recorded the previous month. As such, the moderate upward trajectory remains intact. In addition, the decrease is attributable almost entirely to rather less favourable assessments of the current situation, which fell by 1.2 points from a high level to 20.3 balance points. By contrast, business expectations - which are central to companies' investment decisions - were steady following the large rise in the previous month (-0.1 points to 8.1 balance points).

The business climate among large companies also supports hopes of an economic upturn. Unlike SMEs, large enterprises saw a further improvement in sentiment during September (+1.3 points to 12.3 balance points). The expectations component was especially positive, climbing 3.0 points to 9.0 balance points. Large companies are more optimistic about the future than at any time since June 2011.

There are also signs of recovery on the labour market. Both groups of companies plan to significantly increase their headcount once again (SMEs: +0.9 points to 8.8 balance points; large enterprises: +0.9 points to 11.7 balance points). The employment indicators are at their highest level since the start of 2012.

KfW Chief Economist Dr Jorg Zeuner says: “Sentiment is not soaring, but it remains good.” He explains that this fits with the continuing trend towards recovery, albeit at a modest level for the time being, which is expected to remain in place. The international trade environment is gradually improving, one result of which has been a significant pick-up in the business climate in export-sensitive sectors during recent months. Domestic economic conditions, such as the good labour market situation, wage growth, price trends and low interest rates, remain supportive for the economy. “The chances that rising capacity utilisation will translate into corporate investment in the near term are therefore good. Nevertheless, one should not lose sight of the global and European risks. Particularly in Europe, there is still a lack of genuine growth stimuli and there remain doubts over the ability of certain countries to service their debts, despite some real progress on stabilisation in recent times. There is potential for disappointment here.”