Positive start of the year for business climate in the German equity market

  • German Private Equity Barometer rises in Q1 2018
  • Early phase: Business expectations clearly lag behind business situation
  • Late phase: Dissatisfaction with initial ratings remains low

The mood is very good on the German equity market at the beginning of the year. The business climate index of the German Private Equity Barometer rose by 2.4 points to 66.7 balance points in the first quarter of 2018. The indicator for the current business situation rises to 71.2 balance points (+2.1 points), the indicator for business expectations to 62.1 balance points (+2.5 points).

The valuations of the level and quality of the deal flow as well as the exit and funding environment are changing only marginally. The fundraising and innovation climate is declining slightly, but is maintaining its upward trend.

The business climate in the early phase segment cooled off slightly again at the beginning of the year. The corresponding indicator fell by 3.3 points to 63.0 balance points in the first quarter. The indicator for the current business situation reached a new record with 67.7 balance points (+0.4 points). The business expectation indicator fell by 7.1 points to 58.2 balance points. The expectations of investors were so pessimistic relative to their business situation three years ago.

The late phase segment makes up for its previous decline at the beginning of the year. The very good assessment of the fundraising climate, exit environment, depreciation pressure and innovation climate contrasts with dissatisfaction with the initial valuations, which has almost reached its low point. The Business Climate Indicator increased by 7.1 points to 70.0 balance points in the 1st quarter. The indicator for the current business situation rises by 4.1 points to 74.5 balance points, the indicator for business expectations by 10.1 points to 65.6 balance points.

"In Europe, short-term interest rates are firmly anchored at their lowest point for the foreseeable future," says Dr. Jörg Zeuner, Chief Economist at KfW. "We therefore expect the conditions for fundraising and exits to remain good. We are on the way to providing the start-ups in Germany with significantly better risk capital in every phase of their business. I'm glad this market environment is helping us."

Ulrike Hinrichs, Managing Director of BVK, adds: "The continuing positive mood is good for the market and the economy. A stable equity capital market in particular is best able to cope with its task of financing start-ups and SMEs with equity capital. By contrast, the signs of restraint in business expectations reflect the general uncertainty as to how long the low interest rate environment and the unusually long economic upswing in Europe will continue. However, there is no end in sight at present."

KfW calculates the German Private Equity Barometer together with the German Private Equity and Venture Capital Association e.V. (BVK) exclusively for the Handelsblatt. A detailed analysis with data table and graphic of the current German Private Equity Barometer is available here.