German Service Providers of the Information Society Split over Business Situation and Expectations

The German service providers of the information society are split over their business expectations for the first quarter 2008. The Information and Communication Technology (ICT) service providers, comprising enterprises of the branches software and IT-services, ICT-specialized trade as well as telecommunication services, are far more optimistic concerning the start of the new business year than the knowledge-intensive service providers which include enterprises of the branches tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising.

This is the result of a business survey conducted by the Centre for European Economic Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, in November and December 2007 (details regarding the survey are provided below). The partial indicator derived from the survey which reflects the business expectations and which consists of the components expected turnover and expected demand takes on the value of 65 points for the ICT service providers and the value of only 60.4 points for the knowledge-intensive service providers.

The service providers of the information society also differ with regard to their assessment of the business situation. The knowledge-intensive service providers rated their business situation in the fourth quarter 2007 far more positively than the ICT service providers. For this reason, the partial indicator which reflects the assessment of the current business situation and which consists of the components turnover situation and demand situation takes on the value of 65.1 points for the knowledge-intensive service providers while reaching only 58.6 points for the ICT service providers.

The overall picture of the service providers of the information society is positive. The business situation of the enterprises has stabilised. The ZEW-IDI, a sentiment indicator for the whole sector, has gained slightly in the fourth quarter 2007, adding 0.2 points compared to the value of the third quarter 2007 and now reaches a value of 61.6 points. The partial indicator of the ZEW-IDI which reflects the assessment of the current business situation by the service providers of the information society has risen 1.7 points compared to the value of the third quarter 2007 amounting to a current value of 62.4 points. The partial indicator which reflects the assessment of the business expectations has dropped by 1.1 points falling to 61 points in the fourth quarter 2007.

Concerning the workforce, the knowledge-intensive service providers have created more jobs than the ICT service providers during the fourth quarter 2007. While the percentage of knowledge-intensive enterprises that have created jobs outweighs by 32.7 points the percentage of knowledge-intensive enterprises that have cut jobs, this balance is negative for the ICT service providers. The latter is assumed to be due to the negative development of the size of the telecommunication service providers' workforce. About three fifths of the enterprises of this branch have reported a cut in their workforce in the fourth quarter 2007. The expectations of the telecommunication service providers with regard to the workforce for the first quarter 2008 remain negative. The same goes for other branches. In the branches software and IT services and architecture the percentage of enterprises which project a decrease of the workforce in the first quarter 2008 outweighs the percentage of enterprises planning to increase their workforce.

Especially architects have assessed both the current and the expected business situation clearly negatively. With regard to the indicators turnover, returns and demand, the percentage of enterprises that reported a worsening situation in the fourth quarter 2007 and that expect it to deteriorate further in the first quarter 2008 dominates.

Enterprises of the branches tax consultancy and accounting also reported a change for the worse of their current situation during the fourth quarter 2007. For years, the assessment of the turnover situation has not been as negative as it is today. While more than half of the tax consultants and accountants reported an unchanged current turnover, only a third of the enterprises reported an increased turnover. Returns decreased in the fourth quarter 2007 compared to the third quarter 2007. While almost half of the enterprises had reported increased returns during the third quarter 2007, only one fifth did so in the fourth quarter.

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). An overview of the ZEW/Creditreform business survey is provided on the ZEW project site. For further information in German language only, please consult our homepage at www.zew.de/dienstleister.

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