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German SMEs react calmly to Brexit shock
Frankfurt am Main (ots) -
- Moderate improvement in business climate among SMEs - Business assessments at their highest level since April 2014, expectations virtually stable - Sales price expectations returning to normal - Solid growth in Germany thanks to construction and consumption
The Brexit vote and the developments in Turkey have failed to upset German SMEs. The SME business climate, the central indicator of the KfW-ifo SME Barometer, rose instead by 0.3 points in July to 16.7 balance points, having already been on a consistent upwards trajectory in the first half of 2016.
This is mainly due to SMEs' assessments of their current business situation. At 27.6 balance points - 0.6 points more than in June - the companies' evaluation of their current operations reached their highest level since April 2014; the economy thus succeeded in getting off to a good start in the third quarter. At the same time, the business expectations of SMEs remain almost stable (-0.1 points to 5.7 balance points). Bearing in mind that uncertainty has heightened considerably since the Brexit vote, this sends out a reassuring signal that indicates sober-mindedness.
Nonetheless, the Brexit vote does not leave the SMEs entirely unscathed. The first signs of a slowdown have been detected, particularly in the export-sensitive economic sectors: sentiment is stagnating among industrial SMEs, while weakening somewhat at a high level in the wholesale sector.
The current leader in terms of "sentiment" is the SME construction sector, whose climate indicator climbed 1.3 points in July to reach a new all-time high of 27.9 balance points. Given the forecasted strong demand for new dwellings, residential construction, which is essential for the small and medium-sized construction companies, will likely remain a reliable driver of the German economy for some time to come.
On the other hand, corporate investment has become an economic uncertainty among the GDP components following the Brexit decision. A deterioration of the economic outlook in Europe and uncertainty about the future relationship with the UK, which is Germany's third most important export market, could lower the propensity to invest. It is therefore very opportune that the sales prospects, which are an important determinant of investment decisions, are at least supported again on the price side. For the first time since the beginning of 2014, the sales price expectations of small and medium-sized companies at least reached the long-term average again in July.
Overall, the July results of the KfW-ifo SME Barometer are consistent with KfW's updated economic forecast for 2016 and 2017. Dr Jörg Zeuner, Chief Economist at KfW Group, stated in this respect, "We predict solid growth in employment, consumption and residential construction, which is however likely to be offset by less dynamic exports and corporate investment under the new Brexit conditions compared with the previous forecast." All in all, he expects the German economy to grow by 1.5% in 2016 and by 1.2% in 2017, and points out that the slowdown is attributable solely to the fewer number of working days next year. "Although the economic outlook is not particularly spectacular, it is nonetheless still quite solid under the present general conditions - thanks to domestic demand", Zeuner said.
The current KfW-ifo SME Barometer can be found at: www.kfw.de/mittelstandsbarometer.
KfW Business Cycle Compass Germany and Europe - Brexit update: www.kfw.de/Konjunkturkompass.