German IT-Related Service Providers View Economic Upturn With Caution

The ZEW-IDI value is 55.4 points in the first quarter of 2004. This sentiment indicator for the German IT-related service providers was introduced at the end of last year. In the fourth quarter of 2003 the ZEW-IDI had reached a value of 58.4 points.

The partial indicator of the ZEW-IDI which reflects how the firms rate the current economic situation is 51.8 points for the first quarter of 2004 (previous quarter 52.7 points). The partial indicator that shows the economic expectation for the second quarter of 2004 is 59.1 points (previous quarter 64.8 points). The economic expectations have therefore fallen more strongly than the assessment of the current economic situation in comparison to the fourth quarter of 2003. Nevertheless, the indicator for the economic expectations continues to lead the indicator for the current economic situation and thus reveals a continued positive mood among the IT-related service providers.

This is the result of a business survey among German IT-related service providers which the Centre for European Economic Research (ZEW) in Mannheim and the credit reference agency Creditreform in Neuss, conducted in March and April 2004. 1,100 enterprises participated in this survey. The sector of the IT-related service providers consists of the Information and Communication Technology (ICT) service providers (enterprises belonging to the branches of computer services and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (enterprises belonging to the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

There continue to be no signs of improvement for the employment situation within the sector of IT-related service providers. The expectations from the fourth quarter of 2003 that employment would stabilise in the first quarter of 2004 have not been fulfilled. The turnover share of those enterprises which reduced staff in the first quarter of 2004 exceeds by 21 percent the turnover share of those enterprises which increased their staff in the first quarter of 2004. Those enterprises which plan to reduce staff in the second quarter of 2004 also have a considerably higher turnover share compared to those enterprises which plan to increase staff in the second quarter of 2004.

In the first quarter of 2004 advertising agencies whose sales increased in comparison to the fourth quarter of 2003 realised a turnover share of about 45 percent in their branch. This branch, which is highly sensitive to the general economic situation, is thus experiencing a positive economic trend since the fourth quarter of 2003. The majority of advertising agencies also expect demand to increase in the second quarter of 2004. They believe that the demand increase will have a positive affect on their turnover.

In the first quarter of 2004 the balance of positive and negative turnover changes within a branch also increased in the branches tax consultancy and accounting, research and development, management consultancy and telecommunications services. The telecommunications service providers experienced the most dynamic development of demand at the beginning of 2004. However, price competition is so intense in this branch, that this strong demand increase has led to only a moderate increase in turnover.

Additional 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.

Contact

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