IT-Related Service Providers - Sentiment and Expectations Deteriorate

The business situation of the IT-related service providers has deteriorated in the third quarter 2007. The ZEW-IDI, sentiment indicator for the economic sector IT-related service providers, calculated on the basis of the four components current turnover and demand, as well as expected turnover and expected demand, has decreased by 4.5 points in comparison to the second quarter 2007 and is now at a level of 61.4 points. The current business situation as well as the business expectations for the fourth quarter 2007 are being assessed worse by the firms of the economic sector.

That is, the partial indicator of the ZEW-IDI which reflects the assessment of the current business situation of the IT-related service providers has decreased in the third quarter 2007 by 3.1 points in comparison to the second quarter 2007 down to a value of 60.7 points. The partial indicator of the ZEW-IDI which reflects the assessments of the future business situation fell in the third quarter 2007 by 6 points to a level of 62.1 points. This is the result of a business survey among IT-related service providers conducted by the Centre for European Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, in September 2007 (details regarding the survey are provided below).

The partial indicator of the ZEW-IDI which reflects the assessment of the current business situation of the IT-related service providers has dropped in the third quarter 2007 by 3.1 points as compared to the second quarter 2007, and now reaches 60.7 points. While in the second quarter 2007 roughly two-thirds of the firms in the economic sector reported an increase in turnover, in the third quarter only about half of the firms record an increase of demand. More than two-fifths of the firms report an unchanged demand. In the third quarter 2007 the majority of telecommunications service providers as well as tax consultants and accountants are especially optimistic concerning the demand situation. In contrast, more than half of the firms in the software and IT services branch report unchanged demand.

Roughly one-third of the IT-related service providers declare no change of the current turnover. The percentage of firms which record diminished returns outweighs the percentage of firms which record increased returns by 0.4 points. About two-thirds of management consultants announce unchanged turnovers in the third quarter 2007.

The partial indicator which reflects the assessment of the future business situation has decreased in the third quarter 2007 by 6 points down to a value of 62.1 points. More than two-fifths of the firms expect a positive demand trend, whereas in the second quarter 2007 still more than half of the firms expected an increasing demand. Half of the firms in the economic sector expect no demand changes. While a majority of telecommunications service providers assess the expected development of demand in the fourth quarter 2007 positively, more than one-fourth of architects expect a declining demand. About half of the IT-related service providers and even about four-fifths of the firms in the research and development branch assume an unchanged demand in the fourth quarter 2007.

In the fourth quarter 2007 more than one-third of the IT-related service providers expect an increase in turnover and about two-fifths assume an unchanged turnover situation. The percentage of firms which expect increasing returns outweighs the percentage of firms which expect diminishing returns in the fourth quarter 2007 by 11 points. That is, roughly two-thirds of tax consultants and accountants anticipate an increasing turnover.

IT-related service providers’ expectations of the current employment situation are less optimistic than in the second quarter 2007. Still, the percentage of firms which hired new staff in the third quarter 2007 outweighs the percentage of firms which released staff and more than half of the firms have not altered their employment situation. More than half of the firms in the research and development branch have increased their employment situation. In contrast, the employment situation of architects and technical consultants has deteriorated in comparison to the second quarter 2007. About one-fifth of architects and about one-fourth of technical consultants report an increased employment situation in the third quarter 2007 compared to more than half of the firms which have not changed their employment situation.

The optimistic expectation of the IT-related service providers for the employment situation trend, too, has decreased in comparison to the second quarter 2007. But the percentage of firms which expect an increasing employment situation in the fourth quarter 2007 still outweighs the percentage of firms which expect a declining employment situation by 46.5 points.

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.

The business survey by ZEW/Creditreform

About 800 firms participate in this quarterly survey. The economic sector 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).

Overview of the ZEW/Creditreform business survey

Further information in german language

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. Jenny Meyer, E-mail: meyer@zew.de