German business confidence remains upbeat in December, upswing to continue into 2017

Business confidence in Germany remained upbeat during the month of December, with small and medium scale enterprises remaining in a good mood and more positive about their situation in December. Large enterprises are becoming increasingly optimistic and business confidence in the construction sector is breaking all records.

The SME business climate followed the positive trend of the year, rising to 20.0 balance points, up 1.2 points on the previous month. The indicator has thus gained nearly ten points since the low of February. The main factors that drove the improvement in sentiment were SMEs’ assessments of their business situation. They rose 2.5 points to 29.0 balance points. That was the best situation assessment in five years.

SMEs’ expectations of future business, on the other hand, just barely held steady on the previous month’s level, dropping 0.2 points to 10.8 balance points. Further, the expectation indicator, which continues to be well above average, is evidence of SMEs’ positive outlook in 2017.

The only drop of bitterness was the relatively noticeable cooling of retail sentiment in December, but only among large retailers. Among small and medium-sized retailers, on the other hand, sentiment continued to brighten, closing the year 2016 on an annual high.

German businesses are broadly optimistic about the year ahead. Elections are scheduled in the Netherlands, France and Germany, and possibly in Italy, too. Finally, tough Brexit negotiations will probably begin from spring onwards.

"Against the backdrop of significantly fewer work days, we expect overall economic growth of 1.3 percent in 2017. Germany’s upswing will enter its fourth year in a difficult environment," said KfW Research in its latest publication.

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