Companies Remain Optimistic Despite Modest Revenue and Demand

After kicking off the year 2018 in an extremely positive mood, companies in the German information economy have found that the economic situation has since cooled somewhat. However, most firms remain optimistic over the future economic development of the sector. This assessment is based on the latest reading from the ZEW Economic Sentiment Indicator for the Information Economy, which reached a level of 65.1 points in the first quarter of 2018. In the previous quarter, the indicator was at a level of 70.5 points. The ZEW Economic Sentiment Indicator is the result of a survey among companies in the German information economy, conducted by the Centre for European Economic Research (ZEW), Mannheim, in April 2018.

The slight drop in the sentiment indicator can largely be attributed to negative development in the business situation. The sub-indicator for the business situation, which comprises revenue and demand, fell by 10.3 points to 61.7 points in the first quarter of 2018. Companies’ expectations with regard to future economic development, however, remain at a consistently high level, with the corresponding sub-indicator for business expectations climbing to a value of 68.7 points. On balance, around 40 per cent of the firms surveyed anticipated higher revenues in the second quarter of 2018, while 35 per cent expected demand for their products and services to go up.

The information economy consists of the sub-sectors information and communication technologies (ICT), media service providers and knowledge-intensive service providers. The economic sentiment among companies in the ICT sector has dampened somewhat, but remains for the most part optimistic. Following an exceptionally high reading in the previous quarter, the sentiment indicator dropped by 5.7 points to a level of 72.2 points in the first quarter of 2018. The fact that this clearly exceeds the 50-point mark does, however, signal that the majority of ICT firms still view the economic mood as largely positive. Business expectations among the ICT firms even saw a slight improvement compared to the previous quarter. Already at a high level, the corresponding sub-indicator for business expectations has climbed by an additional 0.2 points to 78.3 points. In contrast to business expectations, the firms’ assessment of the current business situation has dampened noticeably in the first quarter of 2018. This is evident from the corresponding sub-indicator, which dropped eleven points compared to the previous quarter to a current level of 66.6 points.

Economic sentiment among media service providers remains unchanged

The economic mood among the media service providers has changed little since the previous quarter, falling by merely 0.1 points and just clearing the critical 50-point mark with a reading of 51.4 points. This indicates that only a small majority of media service providers gave a positive assessment of the economic mood.

The fact that the sentiment indicator has barely moved is, however, due to the conflicting developments exhibited by the sub-indicators. For instance, expectations regarding the economic development in the second quarter of 2018 were much more positive than the assessment of the current business situation in the first quarter of 2018. The corresponding sub-indicator for business expectations currently stands at a level of 56.2 points, an increase of 10.6 points compared to the previous quarter. The assessment of the business situation in the first quarter of 2018, however, was far more pessimistic, with more than half of firms reporting either a decrease in revenue or demand. As a result, the sub-indicator for the business situation gave a reading of 46.9 points, just under the critical 50-point mark.

Slightly dampened mood among knowledge-intensive service providers

The economic mood among knowledge-intensive service providers dampened somewhat in the first quarter of 2018. In the previous quarter, the sentiment indicator among the knowledge-intensive service providers was at its highest level in quite some time, only to fall by 6.1 points in the current quarter to 62.7 points. The drop in the sentiment indicator is the result of negative development in both sub-indicators, with the assessment of the business situation being somewhat more negative than business expectations. In the current survey, the sub-indicators for business situation and business expectations reached a level of 61.2 and 64.3 points, respectively. The fact that both readings exceed the critical 50-point mark indicates that the majority of the knowledge-intensive service providers have a positive view of the economic mood.

For further information please contact:

Dr. Daniel Erdsiek, Phone + 49 (0)621/1235-356, E-mail daniel.erdsiek@zew.de

The Economic Sentiment Indicator for the Information Economy

The Economic Sentiment Indicator for the Information Economy is composed of the four components turnover situation, demand situation, turnover expectations and demand expectations (each in comparison with the previous and following quarter). They are equally factored into the calculations. Sales situation and demand situation form a sub-indicator reflecting the business situation. Sales expectations and demand expectations form a sub-indicator reflecting the business expectations. The geometrical mean of the business situation and the business expectations is the value of the ZEW Economic Sentiment Indicator of the Information Economy. The sentiment indicator can take on values from 0 to 100. Values above 50 indicate an improved economic sentiment compared to the previous quarter, values smaller than 50 indicate deterioration compared to the previous quarter.

The ZEW Business Survey in the Information Economy

About 5,000 businesses with a minimum of five employees participate in the quarterly survey conducted by ZEW. The companies surveyed belong to the following business sectors: (1) ICT hardware, (2) ICT service providers, (3) media, (4) law and tax consultancy, accounting, (5) public relations and business consultancy, (6) architectural and engineering offices, technical, physical and chemical analysis, (7) research and development, (8) advertising industry and market research, (9) other freelance, academic and technical activities. Combined, all nine sectors make up the economic sector of the information economy. The ICT sector consists of ICT hardware and ICT service providers. Sub-sectors 4 to 9 make up the knowledge-intensive service providers. You can find an overview of the ZEW Business Survey in the Information Economy (in German) at http://www.zew.de/konjunktur.