German SME sector’s business confidence deteriorates for 5th straight month following trade uncertainties

In June, business confidence in Germany’s SME sector deteriorated for the fifth consecutive month but only moderately. After slipping 0.3 points, it is now at 13.8 balance points. The imminent escalation of the trade conflict with the US appears to be generating only little additional uncertainty among SMEs.

At the time of the survey, the German government crisis had not yet deepened. Business expectations of small and medium-sized enterprises stabilized after several declines, rising a modest 0.2 points. They are currently just above the average since 2005. The level of 2.5 balance points shows that optimistic businesses continue to slightly outnumber pessimists.

SMEs’ business situation, by contrast, dropped by one point in June. The downward trend that started in January thus continues unabated. At a level of 25.7 balance points, however, the business situation remains excellent.

However, the domestic economy continues to bolster Germany’s upswing. Employment expectations are stable on a high level, suggesting the jobs boom will continue.

The higher sales price expectations also show that businesses expect vigorous domestic demand in future as well. Besides, both SMEs and large enterprises are operating close to capacity, which should encourage expansion investments, although that prospect is becoming increasingly uncertain.

Meanwhile, trade risks could soon have a negative impact on the business cycle, especially by hampering investment activity and endangering jobs, according to the latest report from KFW Research.