IT-Related Service Providers - Business Situation Remains Stable – Positive Final Quarter 2006

The ZEW-IDI, sentiment indicator for the economic sector IT-related service providers, has slightly increased by 0.2 points in the fourth quarter 2006 and now reaches a value of 64.3 points. The business situation is being positively assessed by the firms in the economic sector in the fourth quarter 2006.

That is, the partial indicator which reflects the development of the current business situation has increased in the fourth quarter 2006 by 7.1 points to a value of 66 points. The future business development, however, is perceived with scepticism by the firms of the economic sector: The according partial indicator has decreased in the fourth quarter 2006 by 7.2 points to now 62.6 points. This is the result of a business survey among German IT-related service providers conducted by the Centre for European Economic Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, in November and December 2006 (details regarding the survey are provided below).

Nearly one third of the firms of the economic sector IT-related service providers assesses the turnover situation in the fourth quarter 2006 positively, as is the case with respect to the demand situation. This positive assessment is especially prevalent among tax consultants and accountants, business consultants, ICT-specialised trade as well as the firms in the research and development branch. More than half of the tax consultants and accountants and the business consultants report in the fourth quarter 2006 of increases in turnover. Turnover increased in the fourth quarter 2006 also for more than one third of the firms in ICT-specialised trade and the firms in the research and development branch. A particularly positive demand situation is evident among the tax consultants and accountants and ICT-specialised trade. More than half of the firms in these branches report in the fourth quarter 2006 of an increased demand.

The positive business situation in the fourth quarter 2006 also gives a lift to the labour market. Indeed, about one fourth of the firms in the economic sector IT-related service providers hired more staff in the fourth quarter 2006 than they released. Especially among the tax consultants and accountants, the business consultants as well as the technical consultants and planners the employment situation is positive. The share of firms which hired staff in the fourth quarter 2006 outweighs the share of firms that released staff by about one half among the tax consultants and accountants and by about one third among the technical consultants and planners.

The partial indicator which reflects the business expectations of the IT-related service providers for the first quarter 2007 has dropped in the fourth quarter 2006 by 7.2 points as compared to the previous quarter, and now reaches 62.2 points. The cautious expectations for the first quarter 2007 possibly reflect the uncertainty faced by the firms in the economic sector concerning the impact of the scheduled value added tax raise. Reservations concerning the expected business development are particularly pronounced among the architects. More than one fifth of the firms in this branch expect decreasing turnover and a recession of demand in the first quarter 2007. Decreasing demand is also expected for the first quarter 2007 by the firms in the advertising branch and by the technical consultants and planners. With respect to future revenue and employment especially the architects and the firms in the computer services and leasing branch expect negative developments. In particular, more than one fourth of the architects expects a decreasing staff size.

Optimistic, in contrast, is the outlook concerning the first quarter 2007 among the firms in the branches telecommunication services and tax consultancy and accountancy. More than half of the firms in these branches expect increasing turnover.

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.

The business survey by ZEW/Creditreform

About 800 firms participate in this quarterly survey. The economic sector IT-related service providers comprises the Information and Communication Technology (ICT) service providers (firms in the branches of computer service and leasing, ICT-specialised trade as well as telecommunication services) and knowledge intensive service providers (firms in the branches of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising).

Overview of the ZEW/Creditreform business survey

Further information in German language

Remark on projection

To generate a representative analysis, the ZEW is projecting the answers of the firms participating in the survey with their shares of total turnover realized in the sector of the German IT related service providers.

Contact

Dr. Jenny Meyer, E-Mail: meyer@zew.de