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Business climate index for small and medium-sized enterprises

KfW-Ifo SME barometer

The Ifo Institute has developed a monthly business climate index for small and medium-sized enterprises (SMEs), in co-operation with and on order from the KfW banking group, which is published by the group as the KfW-Ifo SME barometer. An special evaluation of the monthly Ifo Business Survey in industry and trade (manufacturing, construction, wholesaling and retailing) by company size allows statements to be made on the economic development of SMEs in comparison to the group of larger enterprises and on the economy as a whole.

In the definition of SMEs, attention is given to differences in the sector-specific structures. Included among the SMEs in manufacturing are firms with fewer than 500 employees and in the wholesale trade those firms that achieve a maximum of €50 million in annual turnover. To increase analytical selectivity, in retailing and construction the limits are tighter: in retailing, a maximum of €12.5 million in annual turnover; in construction, up to 200 employees.

The report contains the survey balances of appraisals of the current business situation (percentage of the positive responses minus the percentage of the negative assessments), the balances of the business expectations for the coming half year, as well as the business climate, calculated as a mean value of the two survey components.

In order to make statements not only on cyclical developments of SMEs themselves but also in relation to large firms, the relative IfW-Ifo SME indicator was constructed: It is defined as the balance of the business climate (situation appraisals, expectations) of SMEs minus the business climate balances (balance of situation appraisals, balance of expectations) of large-scale enterprises. The indicator can fluctuate between -200 (100% negative responses of SMEs, 100% positive responses of large-scale enterprises) and +200 (100% positive responses of SMEs, 100% negative responses of large-scale enterprises). In order to filter out the short-term “data noise”, the original time series of the relative SME indicator was smoothed with a six-month moving average. A rise indicates a relative improvement of SMEs, independent of the overall cyclical situation, and a decline a relative worsening.

All time series are seasonally and mean-value adjusted. The zero line thus marks the “cyclically neutral” long-term average. Indicator values larger (smaller) than zero point to an above-average or positive (or a below-average or negative) business-cycle situation.


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