The one from the KfW The business climate indicator, calculated by the German Institute for International Business, fell by 16.2 points to 40.4. This is the third-lowest value in the indicator's history. Only during the financial crisis in early 2009 and the outbreak of the coronavirus pandemic in 2020 was the mood in the private equity market worse.
The indicator for the current business situation fell by 19.2 points to -29.7 balance points. The indicator for business expectations fell by 13.3 points to -51.1 balance points. Private equity investors therefore expect a further significant slowdown in the next six months.
Downturn in the private equity market: “Germany has entered a recessionary period”
One reason for the poor business climate is rising interest rates: These are making fundraising more difficult and raising debt more expensive. Continued disruptions to international supply chains and the expectation of a recession are also significantly weighing on the business climate.
“Germany has entered a recessionary period, which is undoubtedly depressing the business climate in the German private equity market,”
says Fritzi Köhler-Geib, Chief Economist at KfW.
"The sharp rise in key interest rates, which are likely to continue to rise, poses a challenge both for typical private equity financing concepts and for target companies, which are also plagued by sharply rising energy costs. For many companies, the first priority is to survive the winter as unscathed as possible. Once that is achieved, much uncertainty will be eliminated. However, given the shortage of skilled workers, procurement bottlenecks, and the energy crisis, many companies will be forced to reposition themselves. The likelihood that investment opportunities will arise for private equity investors is high."
