OREANDA-NEWS. July 16, 2012. Concerns about the state of the economy have continued to grow among small and medium-sized enterprises in Germany. The SME business climate, the main index of the KfW-Ifo SME barometer, fell by 2.1 points against the previous month to 10.7 balance points. This is already the fourth consecutive monthly drop. The sub-indicator of business expectations for the coming half-year has also deteriorated again. After falling sharply in May, it has now dropped by a further 3.2 points to -2.0 balance points, slipping below the zero line which marks the long-term average for the first time since December 2011. The assessment of the current business situation, in turn, remained on a historically above-average level in June as well (-0.8 points to 23.5 balance points).

The mood in June among big enterprises has turned even more negative. The business climate of big enterprises fell by 6.4 points to 5.8 balance points, a drop three times more pronounced than among SMEs. Business expectations are the main reason behind this as well. They virtually plummeted by 10.8 points, diving deep into the negative zone (-9.4 balance points). Sharper drops in expectations within a single month have occurred only three times in the past: in the early phase of the financial crisis (August and November 2008) and in August 2011 when concerns over an escalation of the debt crisis surged abruptly. The downward correction which big enterprises made on their business situation in June, in turn, was moderate by comparison (-1.3 points to 21.6 balance points).

One factor that may help to explain the rapidly increasing pessimism is that the majority of companies had responded to the June survey underlying the KfW-ifo SME Barometer before the Greek elections. The public debate before the elections about fears over a chaotic meltdown of the euro zone have probably contributed to the deterioration in expectations, which has been particularly severe in the export-sensitive segments of German industry. It can be assumed that a certain degree of calm has returned in the meantime.

"The sentiment described by the KfW-ifo SME Barometer impressively underscores the risks which the debt crisis may pose to German industry if a further escalation were to occur. However, we still expect Germany's economy to get off lightly in 2012", said Dr Norbert Irsch, Chief Economist of KfW Bankengruppe. "The domestic economy will stabilise growth in the months ahead as well. The sharp decline in oil prices is providing positive impulses, which gives consumers more purchasing power. The positive developments on the job market as a main driver of the domestic economy continue – although with slower momentum". Striking evidence of this is that although they voiced strong scepticism about business expectations, the companies surveyed for the KfW-ifo SME Barometer in June left their hiring plans on nearly the same expansive level as in the previous month (SMEs: -0.3 points to 9.4 balance points; large enterprises: +0.4 points to 14.2 balance points).