Morale among small German firms shifts positive for first time since 2022

BERLIN, Oct 7 (Reuters) - Sentiment among small- and medium-sized German businesses nudged into positive territory for the first time since 2022, as slightly more firms showed optimism, a survey found on Tuesday.

An index measuring the morale of roughly 1,200 "Mittelstand" companies that form the backbone of the German economy rose to 0.1 points this year from -4.8 points last year, found the survey by credit agency Creditreform.

A narrow majority of surveyed companies were more optimistic, and the willingness to invest also increased slightly, though both were still below previous levels.

The economy will begin recovering next year, driven by record state spending, but it remains uncertain whether that money can get the economic engine started again, said Patrik-Ludwig Hantzsch, head of Creditreform Economic Research.

"Relying solely on fiscal measures by the federal government is not enough," he said.

The majority of companies rated their current situation as negative for the third year in a row as weak industrial production, subdued consumer sentiment, high energy prices and rising labour costs place them under severe pressure.

The proportion of companies with less than 10% equity rose to 30.8%, the highest level since 2017, due to the weak earnings situation in recent years, forcing them to dip into reserves.

"If the equity gap continues to grow, the risk of insolvency will also continue to rise," warned Hantzsch.

(Reporting by Natascha Koch, Writing by Miranda Murray)