The business climate indicator calculated by the KfW falls by 16.2 points to 40.4 points. This is the third-lowest value in the history of the indicator. Only during the financial crisis in early 2009 and at the outbreak of the COVID-19 pandemic in 2020 was sentiment in the private equity market even worse.
The indicator for the current business situation falls by 19.2 points to -29.7 balance points. The indicator for business expectations falls by 13.3 points to -51.1 balance points. Private equity investors accordingly expect a further significant cooling over the next six months.
Downturn in the private equity market: “Germany has entered a recession course”
One cause of the poor business climate is rising key interest rates: these make fundraising more difficult and at the same time increase the cost of borrowing. Continuing disruptions to international supply chains and expectations of a recession are also clearly weighing on the business climate.
“Germany has entered a recession course, which is undoubtedly weighing on the business climate in the German private equity market”,
says Fritzi Köhler-Geib, chief economist at KfW.
“The sharply rising and likely further rising key interest rates are challenging both for the typical private equity financing concept and for the target companies, which are already burdened by sharply rising energy costs. For many companies, the first priority is to get through the winter as unscathed as possible. Once that is achieved, a lot of uncertainty is already removed. However, given the shortage of skilled workers, supply bottlenecks, and the energy crisis, many companies will be forced to reorganize themselves. The probability that investment opportunities will arise here for private equity investors is high.”
