IT-Related Service Providers - Upswing Continues

In the third quarter 2005 the IT-related service providers followed up on the positive business development of the previous quarter and further expanded their respective activities. This is indicated by the clear increase of the ZEW-IDI.

This sentiment indicator for the economic sector IT-related service providers increases in the third quarter by 9.4 points to a value of 72 points, reaching its highest level to date. In distinction to the preceding quarters, the assessment of the current business situation in the third quarter 2005 has had substantial part in the clear rise of the ZEW-IDI. The partial indicator which reflects the current business situation adds 11.6 points and reaches a value of 69.0. The partial indicator that expresses the firms' business expectations for the fourth quarter 2005 climbs by 8.8 points to a value of 75.2.

This is the result of a business survey among German IT-related service providers that the Centre for European Economic Research (ZEW), Mannheim, and the credit reference agency Creditreform, Neuss, conducted in September and October 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).

The strong surge of the ZEW-IDI is primarily due to the dynamic business development among telecommunication services. The greatest share of firms in this branch reports in the third quarter 2005 of increased turnover as compared to the second quarter 2005. The majority from telecommunication services are also confident that turnover and demand will continue to increase in the fourth quarter 2005.

In the prior three quarters the tax consultants and accountants had the highest balance of positive and negative turnover development. In the third quarter 2005, again more than 60 percent of the tax consultants and accountants report that turnover has increased in comparison to the previous quarter.

In the computer service and leasing branch the business recovery, which was already indicated in the second quarter 2005, has indeed taken place in the third quarter 2005. The balance of positive and negative turnover development in this branch amounts to more than 40 percent, the balance of positive and negative demand development exceeds 35 percent. The positive business development is reflected for more than 40 percent of the computer service and leasing firms in higher revenue as well.

The trailing end in terms of business development in the economic sector of IT-related service providers is the advertising branch. On balance, however, also among the advertisement agencies the share of firms whose turnover increased in the third quarter 2005 in comparison to the previous quarter prevails. Moreover, this branch is characterised by its optimistic outlook concerning the final quarter 2005. More than half of the advertisement agencies expect a pick up of demand for the fourth quarter and that this will positively affect turnover and revenue.

The labour market situation in the economic sector of IT-related service providers has, despite the overall positive business development, not improved in the third quarter 2005. On balance the firms have further cut down on their staff. Also expectations for the fourth quarter 2005 indicate a further decline in employment in the economic sector of IT-related service providers. Only among the tax consultants and accountants as well as the management consultants has the positive business development already for the second quarter in succession meant that the share of firms which hired staff in these branches was significantly greater than the share of firms that released staff.

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

Jörg Ohnemus, Phone: +49 (0)621 1235-354, E-mail: ohnemus@zew.de

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