OREANDA-NEWS. Sentiment among German SMEs is rising rapidly. In the most recent KfW ifo SME Barometer, small and medium-sized enterprises reported a dramatic improvement in current business. The current situation indicator climbed 5.3 points to 28.6 balance points in February, advancing twice as fast as usual to its highest level for nearly two years. However, business expectations for the coming half year dropped 3 points to 14.7 balance points, leaving the SME business climate up 1.2 points overall at 21.8 balance points.

Expectations have been cut after eight months of consecutive rises - a total gain of 14.5 points - which was not entirely matched by improvements in assessments of the current situation (up 5.4 points). Expectations reflect reality more closely following the consolidation. There are also good economic reasons not to allow expectations to spiral: global economic indicators from both China and the USA have been rather disappointing recently. Turbulence on emerging financial markets could have the unfortunate effect of hampering the global recovery, and the conflict in Ukraine has added another risk factor to the mix. Nevertheless, the possibility of a eurozone setback remains the primary economic risk. It is worth noting that sentiment among industrial SMEs with a strong international focus has remained unchanged. In contrast, the business climate in the retail segment has picked up considerably, which points to buoyant demand within the German market.

“The clear improvement in the economy has finally pushed up sentiment within the SME sector,” commented Dr Jorg Zeuner, Chief Economist at KfW. Even the less optimistic forecasts can be seen in a positive light: more cautious optimism limits the scope for disappointment, particularly in view of serious risks such as the current geopolitical tensions surrounding Ukraine. Of course, the situation in Ukraine will not have affected companies' responses to the February Barometer. “Forecasts are healthier, which should not be mistaken for a shift towards pessimism. Expectations remain positive, which demonstrates that companies are now assuming that there will be a recovery, after two slow years. Business sentiment appears to support our economic forecasts: a strong economy in the first half of 2014, with quarterly growth slowing somewhat from the summer. That will be sufficient to achieve real growth of 2.0% in 2014. We then anticipate growth of 1.6% after calendar effects in 2015,” said Dr Jorg Zeuner.

Large enterprises also reported a marked improvement in current business in February, up 4.1 points to 21.7 balance points. They are less worried about potential risks than SMEs. Optimism even advanced slightly month-on-month, gaining 0.4 points to 18.9 balance points in the wake of a sharp rise in the expectation indicator in January. However, assessments of the current situation are still lower than among SMEs, leaving large enterprises more scope for further advances. Overall, the business climate is stronger for large enterprises - up 2.3 points to 20.6 balance points - than among their SME counterparts, due to solid expectations.