IT-Related Service Providers - Positive Employment Effects Despite Dampened Business Development

The ZEW-IDI, sentiment indicator for the economic sector of IT-related service providers, has receded in the first quarter 2006 by 7.4 points to now 63.3 points. Its high level nevertheless expresses optimism, notwithstanding this decline.

Especially the future outlook is positively assessed by the firms in the economic sector. This is particularly evident on the job market. The share of firms that have hired staff outnumbers the share that released staff for the second quarter in a row. This balance gained more than three points in the first quarter 2006 in comparison to the preceding quarter and reaches a value of about 10 points. For the first time since 2002 the balance of the employment development is positive as well among East German IT-related service providers.

This is the result of a business survey among German IT-related service providers that the Centre for European Economic Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, conducted in March 2006. About 1,000 firms participated in this survey. The sector of the IT-related service providers comprises the Information and Communication Technology (ICT) service providers (firms in the branches of computer service and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (firms in the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

The fall of the ZEW-IDI is attributable to the decrease of the partial indicator which reflects the firms' business situation in the first quarter 2006 as compared to the business situation in the last quarter 2005. This indicator dropped from 70.7 to 54.4 points in the first quarter 2006. In comparison to the fourth quarter 2005, the firms of the economic sector were neither as satisfied, with turnover development nor with the development of demand. In the final quarter of 2005 the assessment of the business situation had, however, reached an all-time high, such that it could have only been topped by an extraordinarily positive business development. The partial indicator for the assessment of business expectations increased in the first quarter 2006 by 3.1 points to a value of 73.8 points.

This optimistic outlook on the future in the economic sector of IT-related service providers is corroborated by the positive employment development in the majority of the branches. This is especially the case for the tax consultants and accountants. In this branch 60 percent of the firms report that their staff increased in the first quarter 2006. Among technical consultants and planers this share amounts to slightly more than 55 percent. In the first quarter 2006 the balance of employment development was negative only among architects and computer services and leasing.

In the advertising branch the balance of employment development in the first quarter 2006 is positive for the first time again since the third quarter 2004. More than half of the firms in this branch achieved in the first quarter 2006 a higher turnover than in the previous quarter and about 75 percent expect that their turnover will rise in the second quarter 2006. According to the expectations of the advertising agencies surveyed, the positive business development should have a clearly positive impact on employment in the second quarter 2006.

Of all branches included in the survey, the share of firms expecting to hire staff in the second quarter is highest in telecommunications services. Although in the first quarter 2006 the telecommunications service providers were not able to follow up on what was for them a very positive last quarter 2005, the expectations of the firms in this branch are optimistic regarding the development of turnover in the second quarter 2006.

Information on the ZEW Indicator of IT-related service providers (ZEW-IDI)

The ZEW-IDI is calculated on the basis of the four following components: current turnover and demand, as well as expected turnover and expected demand (each compared to the preceding respectively succeeding quarter.) All of them are weighted equally in the calculation. Current turnover and demand form a partial indicator which reflects the business situation. Turnover expectations and demand expectations form a partial indicator which reflects business expectations. The geometric mean of the business situation and the business expectations equals the value of the ZEW-IDI. The sentiment indicator can take on values from 0 to100. Values exceeding 50 hint at an improvement of the business situation compared to the previous quarter, values less than 50 hint at a worsening compared to the previous quarter.

Remark on projection

To generate a representative analysis, the ZEW is projecting the answers of the firms participating in the survey with their shares of total turnover realized in the sector of the German IT related service providers.

Contact

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