Economic Climate among Business-Related Service Providers Continues to Worsen

The annual rate of growth in turnover of business-related service providers fell to 2.5 per cent in the third quarter of 2001. This is part of a continuing downward trend which has been observable in this branch of the economy since the beginning of the year. Expectations for the fourth quarter of 2001 do not indicate any improvement.

These are the findings of an economic survey carried out amongst business-related service providers by the Mannheim Centre for European Economic Research (ZEW) in collaboration with the Verband der Vereine Creditreform, Neuss, in September 2001. The survey is carried out on a quarterly basis among approximately 1,000 businesses in the following sectors: tax advisers and certified public accountants, business consultants, architects, technical planners, vehicle rental companies, machine rental companies, cargo handling and logistics firms, software providers, advertising agencies and waste management firms.

The annual rate of growth in turnover among West German business-related service providers dropped by only 0.4 percentage points and now stands at 2.7 per cent. By comparison, their East German counterparts suffered a much more considerable economic downturn. The annual rate of growth in turnover among these companies fell by 1.2 percentage points and stands at merely 0.3 per cent in the third quarter of 2001.

This sluggish economic climate among business-related service providers, which have been experiencing a downturn since the beginning of the year, has also been confirmed by other indicators. For example, demand and revenue have also declined over the same period. The employment trend has also been negatively affected, with more companies reporting staffing cutbacks rather than new hires.

A comparison with the economic climate twelve months ago in the third quarter of 2000 offers further evidence of the current gloomy economic climate. Turnover, revenue and demand have all fallen sharply compared to the same quarter last year. The demand for personnel has also decreased.

Business-related service providers are pessimistic about the near future. They expect the situation in terms of turnover, revenue and demand to continue to worsen in the last quarter of 2001. In addition, business-related service providers expect dynamism with regard to the hiring of new personnel to continue to decline.

Haulage firms and depot services experienced the most growth within this sector in the third quarter of 2001. Good sales performance in this sector is, however, not reflected in total revenue due to high costs and an increasingly competitive market. Nevertheless, haulage firms and depot services are still two of only a few sectors of business-related service providers to hire more employees than they dismissed in the third quarter of 2001.

The highest share of companies still hiring new employees were management consultancies. However, their sales performance in the third quarter of 2001 was rather modest compared to the previous quarter. In addition, there were more firms reporting decreases than increases in total revenue.

Despite an economic downturn in the IT and communications industries, IT service providers still experienced more growth than most other sectors. This has had a positive impact on their hiring levels. In terms of revenue, they are also ahead of other business-related service providers.

The ongoing downturn in the construction industry has also continued in the third quarter of 2001, affecting architecture firms as well as technical consultants and planners. There are still more businesses in these sectors reporting falling, rather than increasing, turnover. This is also the case for demand and total revenue. Furthermore, considerably more businesses in this sector have let more staff go than they have employed.

Coming in last in terms of their economic situation in the third quarter are machine rental companies and advertising agencies. The advertising industry is suffering due to the weak overall economic climate, which has led many companies to cut back on their advertising budget or to postpone advertising entirely. The demand for advertising is weak and agencies are thus faced with a difficult earnings situation. As a result, there is a high number of firms in this sector who have dismissed more employees than they have hired.

Contact

Prof. Dr. Alexandra Spitz-Oener, Phone: (+49) 0621/1235-293, E-Mail: spitz@zew.de