IT-Related Service Providers - Economic Stabilisation at High Level Leads to First Positive Employment Effects

IT-related service providers concluded the year 2005 with a favourable business outlook. For the first time, positive effects on the job market can be seen as well.

In the fourth quarter of 2005, both partial indicators of the ZEW-IDI, the assessment of the current business situation and the assessment of the business expectations, reached a value of 70.7 points each. Accordingly the ZEW-IDI, as arithmetic mean of these values, reached 70.7 points as well. The sentiment indicator for the economic sector of IT-related service providers thus falls only 1.3 points short of the historic high of the previous quarter. For the first time since the conception of the ZEW-IDI, the partial indicator for the business expectations does not have a higher value than the indicator which reflects the assessment of the current situation. Due to the high level of the two partial indicators this should, however, not be taken to indicate a less dynamic business development in the year 2006. Rather, the high level of the partial indicators suggests a stabilisation of the positive development in the economic sector.

Last year's ongoing stimulation of business in the economic sector of IT-related service providers for the first time also rendered positive effects for the job market in the fourth quarter 2005. On average, more firms in the sector hired staff in the final quarter of 2005 than reduced the number of their employees. This balance is positive for the first time since the survey was focused on the economic sector of IT-related service providers in spring 2002.

This is the result of a business survey among German IT-related service providers that the Centre for European Economic Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, conducted in November and December 2005. About 1,000 firms participated in this survey. The sector of the 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).

Primarily the branches telecommunication services, tax consultancy and accounting as well as management consultancy contributed to the stimulation on the job market. In IT-specialised trade and among architects, the firms that hired new employees and those that released employees nearly balance out. In the remaining branches of the economic sector this balance is still negative.

The business development in the fourth quarter 2005 in the branches telecommunication services and tax consultancy and accounting was again more dynamic than in the other branches of the economic sector. In each of the two branches more than two thirds of the firms reported an increase of demand as compared to the third quarter 2005. They also feature the highest share of firms that increased their turnover.

As already in the previous quarter, the architects experienced a positive development of business in the fourth quarter 2005. This was due also to the running out of the Home Owner Credit subsidy as of 01.01.2006. The balance of positive and negative demand notices of the architects went up about 15 points as compared to the previous quarter. In the fourth quarter 2005, nearly half of the architects achieved a higher turnover than in the previous quarter. However, the architects expect that demand for their services will significantly decrease in the first quarter 2006.

In ICT-specialised trade the balance of positive and negative turnover development in the fourth quarter 2005 for the first time again reached the level of the second quarter 2004. The firms in this branch are also very optimistic concerning the development of turnover, revenue and demand in the first quarter 2006. In the fourth quarter 2005 the prices in ICT-specialised trade were stable. For the first quarter 2006 more firms expect rising rather than falling prices.

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.

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