Business Outlook for ICT Service Providers and Knowledge-Intensive Service Providers Brightens Up

In Germany the business situation of 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, has improved in the first quarter 2008 compared to the fourth quarter 2007. 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 assess their current business situation in the first quarter 2008 more pessimistically. However, this pessimism will not last. The business expectations for the second quarter 2008 are assessed far more positively by the ICT service providers as well as the knowledge-intensive service providers. 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 March 2008.

The partial indicator derived from the survey which reflects the assessment of the business expectations takes on the value of 72.4 points for the ICT service providers and the value of 65.4 points for the knowledge-intensive service providers and therefore exceeds the values of the previous quarter. Accordingly, the business expectations for the whole sector of the service providers of the information society are favourable in the second quarter 2008. The partial indicator which reflects the business situation of the whole economic sector is at the value of 72.2 points. It has gained 11.2 points compared to the previous quarter.

Because of this optimistic business outlook, the ZEW-IDI, a sentiment indicator for the whole sector, has increased by 5.0 points to 66.6 points in the first quarter 2008. The sentiment indicator for ICT service providers has increased by 4.5 points to a value of 66.2 points. The sentiment indicator for knowledge-intensive service providers at 60.6 points is slightly below the value in the fourth quarter 2007. Therefore, the year starts more cautiously for the knowledge-intensive service providers. However, the indicator still shows an optimistic sentiment despite its slight decrease.

Especially the branches software and IT-services as well as telecommunication services seem to be responsible for the positive business expectations of the ICT service providers. In the branch software and IT-services, the turnover expectancy has improved in the first quarter 2008. Most enterprises in the branch software and IT-services also expect an increasing turnover in the second quarter 2008. The expectations for turnover, demand, returns and workforce have improved in the branch telecommunication services. According to its assessment, the current situation is good. The lower pricing pressure is also favourable for the telecommunication services. About two thirds of enterprises report rising prices and expect them to increase even further in the second quarter 2008.

The cautious assessment of the current business situation by the knowledge-intensive service providers can be ascribed among others to the worse situation concerning demand and turnover in enterprises in the branches technical consultancy and planning, advertising and research and development. The percentage of enterprises which report an increase in turnover and demand in the first quarter of 2008 has decreased in all three branches compared to the fourth quarter 2007. At the same time, the percentage of enterprises which report a decrease in turnover and demand has increased. The management consultants also assess their business situation more unfavourably. In the previous quarter, more than half of them reported an increase in turnover and demand. In the first quarter 2008 only about one third reported this. In contrast, a particularly positive development is reported by the architects. The current situation and the expectations with respect to turnover and demand have improved considerably. In the fourth quarter 2007, the percentage of architects who were affected by a decrease in turnover and demand outweighed the percentage of enterprises with an increasing turnover and demand. In the first quarter 2008 however, the balances for turnover and demand are positive. The percentage of architects who expect an increase in turnover and demand in the second quarter 2008, outweighs the percentage of architects who expect a decrease.

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 software and IT services, 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