Innovation Survey 2002: Innovative Power of the German Export Economy Curbed by Consistently Weak Demand

According to German companies, 2002 shall be characterised by declining innovation budgets. Companies in the manufacturing industry, for example, expect innovation spending to fall from 60.6 billion euro in 2001, to 58.7 billion euro in 2002. This, however, seems to be a temporary decline; manufacturing firms are already expecting to see a significant rise in innovation spending within the year.

The manufacturing industry alone hopes to invest around 62 billion euro in innovation projects. Business-related service providers have meanwhile reserved a budget of almost 15 billion euro. This is a finding of the now complete, Innovation Survey 2002, carried out by the Centre for European Economics Research (ZEW) on behalf of the Federal Ministry for Education and Research (BMBF).

Implementation of these plans depends on the German economy recovering as anticipated, and particularly on a significant increase in domestic demand. Currently, however, developments are not heading in this direction. The fact that export-oriented companies have increased their innovation spending much more than other companies, could become a considerable burden for innovation intensity in the export economy, curbing German innovation on a whole. Considering the growth gap between German domestic demand and the most important foreign markets' demand over the last ten years, this should not come as a surprise. Unfortunately, persistently weak demand in Germany can thwart export-oriented companies’ innovation efforts as many innovations are tested in domestic markets before they are successfully introduced to foreign markets.  If the domestic market is permanently removed as an impulse for innovation, the willingness to implement innovations can decrease. This leads to the loss of market shares in global competition.

When the survey was carried out in the middle of 2002, companies expected their innovation budgets for 2002 to fall back to the levels seen in 2000. Business-related service providers were the most optimistic, expecting growth of about three per cent, whilst distribution service providers expected their innovation budgets to further decrease in 2002, by more than ten per cent.

On the contrary, however, all three economic sectors wish to expand in the year 2003. In the manufacturing sector, companies’ projected innovation spending totals almost 62 billion euro. This is about five per cent more than in 2002, and two per cent more than in the previous record year, 2001. Companies in the service industries expect to see growth of two to three per cent.

Expectations for 2003 in terms of innovation spending are generally more positive in export-oriented sectors. Innovation budgets are particularly expected to increase in the automotive manufacturing sector, electronics/electrical engineering, metal industry (more and more dependent on car sales) and the heterogeneous sector wood/paper/print/publishing. Among the service industries, companies in the IT and telecommunication sector are the most optimistic, while companies in sectors that are rather domestically-oriented, technical service providers and business consultants for example, are much more modest in terms of their estimated innovation spending.

Contact

Dr. Christian Rammer, Phone: +49(0)621/1235-184, E-mail: rammer@zew.de