IT-Related Service Providers - Stabilisation of the Business Situation - Optimistic Expectations for the Fourth Quarter 2006

The ZEW-IDI, sentiment indicator for the economic sector IT-related service providers, has slightly decreased on the third quarter 2006 by 5.5 points and is now at a level of 64.1 points. Indeed, the business development in the third quarter 2006 has been less dynamic compared to the previous quarter. Nevertheless the high value of the indicator, despite this slight decline, expresses an optimistic sentiment and suggests a stabilisation of the business situation in the economic sector.

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 September 2006 (details regarding the survey are provided below).

The partial indicator that reflects the assessments of the business expectations of the IT-related service providers has decreased in the third quarter 2006 by 4.7 points compared to the second quarter 2006 and is now at 69.8 points. Although the firms' expectations fall short of those of the second quarter 2006 they still indicate a basic optimistic sentiment in the economic sector. In fact, more than half of the IT-related service providers expect rising turnovers and growing demand for the fourth quarter 2006. This is particularly the case for telecommunication service providers and the tax consultants and accountants. Among the architects and technical consultants and planners, in contrast, the share of firms that expect decreasing demand for the fourth quarter 2006 outweighs the share of firms that expect increasing demand. A quarter of the firms of the economic sector expects increasing revenues. The expectations of the IT-related service providers regarding future adjustments of the work force are optimistic as well. This is indicated by the positive balance of the share of firms planning to hire new staff and the share of firms planning to release staff.

The partial indicator that reflects the development of the current business situation has decreased in comparison to the previous quarter by 6.2 points and is now at 58.9 points. Thus, the IT-related service providers assess the current business situation in the third quarter 2006 somewhat less positively than in the second quarter 2006, yet still more positively than in the first quarter 2006 (54.4 points). This suggests a stabilisation of the business situation. In the third quarter 2006 about one third of the firms in the economic sector IT-related service providers assesses the turnover situation positively, whereas about one fourth of the firms assesses the turnover situation negatively. The positive turnover situation is especially prevalent among tax consultants and accountants. With respect to revenue as well as demand in the third quarter 2006 the firms of the economic sector are, on balance, more satisfied than in the second quarter 2006. The employment situation in the third quarter 2006 has, compared to the second quarter 2006, slightly worsened for all firms of the economic sector. Notwithstanding, the share of firms that have hired staff still outweighs the share of firms that have released staff. Only among computer services and leasing is the balance of employees negative.

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 only.

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