Innovation Survey 2008: Robust growth in innovation expenditures in 2007 – meagre prospects for 2009

Driven by the relatively strong economic climate in 2007, German businesses increased their investments in innovation. In 2007, the German economy added more than six percent to its innovation expenditures. Altogether businesses invested 122.7 billion euros. However, in view of the cooling down of the economy, companies have budgeted for smaller innovation investments in the years 2008 and 2009. In 2008 the increase in innovation expenditures was limited to 0.9 percent rising to a total of 123.8 billion Euros. In 2009, businesses expect to reduce their spending for future industrial development in Germany to 122.5 billion Euros. This represents a one percent cutback in the innovation budget. These are the findings from the recently published 2008 German Innovation Survey conducted by the Centre for European Economic Research (ZEW) in Mannheim with a mandate from the Federal Ministry for Education and Research in collaboration with the Fraunhofer Institute for Systems and Innovation Research as well as the infas (Institute for Applied Social Sciences).

Businesses budgeted only a small increase of 0.9 percent to 123.8 billion euros for innovation expenditures in 2008. The reason for this was the anticipated fall in demand as a part of the expected economic slowdown. Corrected for inflation, this represents a net reduction in investment by businesses in their future competitiveness. According to the estimates of industrial enterprises, innovations expenditures rose by 2.8 percent. This compares, however, with an actual decrease in the knowledge-intensive and other services sectors of 2.3 percent and 6.9 percent, respectively.

In 2009, businesses want to tighten the belt even more severely. According to their budgets, for the first time since 1994, innovation expenditures in Germany will fall by one percent to 122.5 billion Euros. While industrial enterprises as well as other service providers envisage nominally constant innovation budgets for 2009 compared to 2008, knowledge-intensive services are planning budget cuts of more than seven percent. Above all, banks and insurance companies as well as the computer and communications industries along with the consulting and advertising industries intend to invest less in 2009 for innovation. These plans were generally initiated in early 2008 – at that time, the economic forecasts for 2009 were still relatively optimistic.

In 2007, the good economic climate, a high demand for improved products as well as increased competition led to the significant enlargement of innovation budgets throughout German businesses. These increases were carried by the growth of the industrial and the service sectors. In the industrial sector innovation related expenditures rose to 6.1 billion euros. This represents an increase of 7.5 percent. Other services (wholesale, transportation and business services) increased expenditures for new products and processes as much as 10 percent to nine billion euros. The knowledge-intensive sector, especially credit and insurance companies and the telecommunications sector, significantly reduced their innovation expenditures. The knowledge-intensive service providers still spent 22.7 billion euros in 2006 for the development of future processes and products. By 2007 this had dropped to 21.4 billion euros, reflecting a decrease of 5.7 percent. Innovation intensity is a measure of innovation expenditures as a percentage of total turnover in all businesses, and has been relatively stable in German industry for many years at 5 percent. In 2007 the percentage still remained constant at 4.8 percent. In knowledge-intensive services, this measure has shown a steady upward trend for a number of years. In 2007, this began to turn around. After peaks of 5.5 percent in the years 2005 and 2006, innovation intensity sank to 5.4 percent in 2007. In the other services sector, for many years about one percent of turnover was devoted to innovation projects. In 2007, this fell to 0.9 percent.

The percentage of turnover generated by new products slightly decreased in all sectors in 2007 from 17.0 to 16.7 percent. Industrial enterprises generated 27.4 percent of their total turnover from new products (in 2006, 28.4 percent). Knowledge-intensive businesses reported a long-stable turnover percentage from product innovations of 12.4 percent (in 2006, 12.0 percent). In the other services sector this measure fell slightly to 6.7 percent (in 2006, 7.5 percent).

In 2007, the German economy was able to save 4.4 percent of the cost per piece or per process with the help of process innovation. Industrial enterprises were even able to achieve a savings of 4.6 percent. The knowledge-intensive sector matched the general economy at 4.4 percent, while the other services sector lagged behind at 2.6 percent. In addition, quality-improvement process innovations led to an increase in total economic production of 2.6 percent to 2.9 percent in the previous year. In the industrial sector, the increase attributable to quality-improvement process innovations was about three percent, which was significantly less than the previous year’s values. In the knowledge-intensive service sector the indicator reached 2.3 percent, which was its lowest value since 2003. Businesses in the other services sector were, however, able to attain a relatively high level of additional growth of 2.4 percent.

Press summary regarding the innovation survey

Since 1993, the Centre for European Economic Research (ZEW) has conducted an annual survey about innovation activity in the German economy. The German Innovation Survey is conducted under a mandate from the Federal Ministry of Education and Research. In the 2007 survey, more than 10,200 businesses representing industry (manufacturing industries, including mining), knowledge-intensive services (computers and data processing, telecommunications, technical services, research and development, business services, advertising, banking and insurance), other services (wholesale, transportation, postal services, cleaning, security, employment agencies, other business services, waste disposal), energy and water supply, and the media sector.

For further information please contact

Dr. Christian Rammer, Phone: +49/621/1235-184, E-mail: rammer@zew.de