Service providers in the Information Economy Once Again Pessimistic

The optimistic expectations of service providers in the information economy have once again been disappointed in the second quarter of 2002. The rate of growth in turnover in this economic sector has slowed and has a current annual rate of 2.5 per cent.

In the first quarter of 2002, the rate of growth in turnover was one percentage point higher than currently. The business cycle in Information and Communications (ICT) trade has been particularly badly affected.

This is the finding of a survey carried out amongst service providers in the information economy. The sector of the IT-related service providers comprises Information and Communication Technology (ICT) service providers (firms providing 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). Around 1,200 businesses took part in the survey which was carried out by the Mannheim Centre for European Economic Research (ZEW) in collaboration with Creditreform, Neuss, in July 2002.

The current rate of annual growth in turnover in ICT sectors totals 3.2 per cent. In knowledge-intensive sectors, the current annual rate of growth in turnover is 2.3 per cent. The negative developments seen since the previous quarter are largely a result of negative developments in the economy as a whole. The fall in the annual rate of growth in turnover amongst service providers in the information economy is, amongst other things, a consequence of business developments seen in ICT trade. The turnover in this sector was particularly hard hit in the second quarter of 2002.

Service providers in the information economy have, on balance, seen no increase in demand. The share of turnover of businesses in West Germany, whose returns fell in the second quarter of 2002, totals 30 per cent. In East Germany, this proportion totals 42 per cent.

Expectations for the coming quarter are also rather unfavourable. Having said this, businesses' expectations for the third quarter of 2002 are more optimistic than those expressed for the first quarter of 2002. The turnover share of businesses expecting an increase in turnover in the third quarter totals almost 45 per cent. However, only 25 per cent of businesses also expect improvements in the profit situation. On the basis of these expectations, many service providers in the information economy have reduced their staff numbers in the second quarter of 2002. The turnover share of businesses expecting to cut jobs in the third quarter of 2002 totals more than 25 per cent.

The largest proportion of businesses having increased their turnover in the second quarter of 2002 are tax advisors and certified public accountants, as well as research and development businesses. Of the nine sectors surveyed, it was only businesses in these two branches which on balance employed more new staff than they let go.

The businesses which fair worst in this regard are those in ICT trade and advertising. The positive expectations held by businesses involved in ICT trade for the first quarter of 2002 were disappointed in the second quarter. The private as well as the industrial market for Information and Communication Technologies (ICT) is developing poorly. The proportion of ICT traders who have experienced lower demand in the second quarter than in the first quarter of 2002 totals more than 70 per cent. The ICT trade sector also has the highest proportion of businesses which have experienced falling turnovers and returns in the second quarter of 2002.

The crisis in the advertising sector has continued in the second quarter of 2002. In most companies, the advertising budget was cut for the whole year. Advertising agencies are therefore expecting to see further falls in demand in the third quarter of 2002. Accordingly, the turnover share of advertising agencies which reduced their staff numbers in the second quarter of 2002 totals almost 60 per cent.

Contact

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