Dismal Prospects for German IT-Related Service Providers

The annual rate of growth in turnover in the German IT-related services sector declined to 1.7 percent in the first quarter of 2003 from 2.1 percent in the previous quarter. The poor economic development in this sector becomes especially apparent when compared to the first quarter of 2002: Turnover, income, demand and personnel have declined; only the downward pressure on prices has abated slightly compared to the start of 2002.

This is the result of a business survey among German IT-related service providers that the Centre for European Economic Research (ZEW) and the credit reference agency Creditreform conducted in March and April 2003. 1,200 enterprises participated in this survey. The sector of the IT-related service providers consists of the Information and Communication Technology (ICT) service providers (enterprises of the branches computer services and leasing, ICT-specialized trade as well as telecommunication services) and knowledge intensive service providers (enterprises of the branches tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

The various branches of the IT-related services sector differ with regard to how the general economic downturn is effecting their economic development. Compared with the general situation, the branches computer services and leasing, research and development, as well as tax consultancy and accounting were spared by the poor demand situation in the first quarter of 2003. These branches show the highest turnover shares by enterprises reporting an increase in demand in comparison to the fourth quarter of 2002. In the branches computer services and leasing, as well as research and development, the positive demand trend also reflects in rising turnover. The turnover share of tax consultants and accountants that expect to increase their turnover from the second quarter of 2003 onwards, is above 50 per cent. Presumably because of these positive prospects the branch tax consultancy and accounting is the only branch reporting an increase in the workforce in the first quarter of 2003.

The branches ICT-trade, architecture, and advertisement are hit the hardest by the cyclical downturn. More than 50 percent of the turnover in these branches is earned by enterprises reporting a decrease in turnover as compared to the previous quarter. The ICT-specialized trade is the only one of these three branches showing a positive balance of expectations for turnover development in the second quarter of 2003.

The future prospects for the IT-related services sector are also rather bleak. The turnover share of the West-German IT-related service providers that expect an increasing trend in demand only slighty outweighs the share of those enterprises expecting a decreasing trend in demand. In East Germany the balance of demand expectations is strongly negative. Here the turnover share of those enterprises expecting an increasing trend in demand is 14 percent, whereas the turnover share of those enterprises expecting a decreasing trend in demand is above 30 percent.

The enterprises are also pessimistic with respect to the short term development of employment in their sector. While enterprises with a turnover share of about 50 percent already had to downsize their workforce in the course of the first quarter of 2003, enterprises with a turnover share of more than 40 percent expect to have to downsize again in the second quarter. The share of enterprises in telecommunication services, architecture, and advertising that are expecting a reduction in employment is above average.

Contact

Dr. Margit Vanberg, E-mail: vanberg@zew.de