Economic Downturn Amongst Business-related Service Providers

In the second quarter of 2001, the annual rate of growth in turnover of business-related service providers fell by 1.3 per cent, to a value of 3.0 per cent. The economic stabilisation seen in the first quarter of 2001, has not, therefore, continued into the second quarter of this year. Expectations for the third quarter of 2001, do not suggest that any improvements are likely to be seen in the near future.

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 credit reference agency Creditreform, Neuss, in June and July 2001. This survey is undertaken on a quarterly basis and concerns 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 logistic firms, software providers, advertising agencies and waste management firms.

Remaining indicators of economic development amongst business-related service providers provide a consistent picture, confirming an economic downturn. Levels of demand and returns have fallen in comparison to the levels seen in the first quarter of 2001. Significantly more firms have reported decreases, rather than increases, on returns. Furthermore, for the first time since 1997, more businesses in this sector have let more staff members go, than they have employed.

As a result of the unfavourable global economic situation, many economic experts expect to see continued deterioration in the German economic situation throughout 2001. Business-related service providers in both East and West Germany are also pessimistic in regard to the third quarter of 2001. Expectations for developments in both turnover and demand have worsened. Businesses also expect medium-term developments in returns to be somewhat disappointing. In addition, business-related service providers expect to see continued falls in regard to the number of new personnel being employed.

The continued downturn in the construction industry has also continued in the second quarter of 2001, affecting architecture firms as well as technical consultants and planners. As in the previous quarter, more businesses in both of the above-named sectors expect to see falls rather than increases in turnover. Expectations are similarly pessimistic in regard to levels of demand and returns. Continued economic tension is also impacting the development of the employment structure in these sectors. It is particularly notable, that significantly more staff members were let go, than were newly employed in this quarter.

Advertising agencies and machine rental firms have seen only modest developments in their employment structures. It is regularly the case that more businesses in these sectors report falling, rather than increasing turnovers. Demand for services is low and the development of returns has slowed. The expectations of businesses in the advertising sector also suggest that improvements should not be expected in the near future, neither in regard to turnover, returns nor demand. In contrast, machine rental businesses view the coming period with greater optimism.

The largest proportion of newly established businesses are business consultancy firms, followed closely by IT-related service providers. Business consultants also rank in first place in regard to developments in turnover, levels of demand and returns. IT-service providers, however, view their economic situation in the first quarter of 2001 somewhat more negatively. Despite this, they rank, along with business consultants, amongst those businesses exhibiting the highest rates of growth amongst business-related service providers.

The development in turnover of cargo handling and logistics firms seen in this quarter also sees them rank amongst those businesses showing the highest rates of growth within this sector. As has been the case in the past, however, the positive development in turnover in this sector has failed to have a positive impact on returns. Indeed, significantly more firms have reported falls, rather than increases, in returns.

Contact

Professor Alexandra Spitz-Oener, Phone: 0621/1235-293, E-Mail: spitz@zew.de