IT-Related Service Providers - ZEW-IDI at Peak Level

The ZEW-IDI, sentiment indicator for the economic sector IT-related service providers, climbed to a score of 62.6 points in the second quarter 2005. With this marked increase, as compared to the previous quarter's value (55.4 points), the indicator reaches its peak of the second and third quarter 2004.

Both partial indicators, from which the ZEW-IDI is composed, gained in the second quarter 2005 as compared to the previous quarter. The partial indicator for the current business situation increased by 3.7 points to reach its value of 57.4 points. The partial indicator which reflects the firms' business expectations rises by 11.2 points to a value of 68.4 points.

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 June and July 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).

In the second quarter the balance of positive and negative turnover developments is once again highest for the tax consultancies and accountants at about 63 percent. Among management consultancies and firms in the branch of research and development the share of firms which report an increase in turnover in the second quarter 2005 also outweighs the share of firms whose turnover receded by more than 55 percent. These three branches alone exhibit a positive balance in the earnings development in the economic sector. It is also only in these branches that the share of firms that hired staff outweighs the share of firms that released staff. Accordingly, it comes at no surprise that particularly these three branches stand out with their positive expectations for the third quarter 2005. Solely the providers of telecommunication services feature a higher balance of positive and negative expectations regarding the development of turnover and demand in the third quarter 2005.

The architects' optimistic expectations from the first quarter 2005 have been met with respect to the second quarter 2005. In this branch, which among the nine branches surveyed occupied last place in turnover development for three consecutive quarters, the balance of turnover development in the second quarter 2005 is positive. This has its reason primarily in the seasonal pick-up in the construction trade. The architects nevertheless continue to be the branch with the highest proportion of firms with a reduction of their staff in the second quarter 2005.

The firms in the branch computer services and leasing, which in the past has been among the most stable branches in the sector as regards business development, stood out in the fourth quarter 2004 and the first quarter 2005 with a poor business development. In the second quarter 2005 the balances of the turnover and demand development are now again positive. The firms' expectations for the near future are tentatively optimistic as well. About 20 percent of the computer service providers and lenders expect heightening demand, the remainder assumes a stable order situation.

The labour market situation in the economic sector IT-related service providers has across branches seen some relief on average. About 21 percent of the firms have hired staff in the second quarter 2005. About 24 percent of the firms have released staff. The balance of -3 percent is about 13 points above the previous quarter's value (-16.1) and marginally tops past year's level (-5.3). The IT-related service providers do not, however, expect that current improvements of the labour market situation go beyond the consolidation usually observed in springtime. The balance of positive and negative expectations concerning the development in employment in the third quarter 2005 is -5 percent.

The positive business development in the economic sector IT-related service providers is in the second quarter 2005 again restricted to the western German firms of the economic sector. In eastern Germany the development of turnover and demand is still poor. Yet the balances amount to be less negative than in the first quarter 2005. The balance of positive and negative development in employment has also slightly improved among eastern German firms. Nevertheless, the share of firms that released staff outweighs the share of firms that hired staff by 31 percent. For the third quarter 2005, about 34 percent of the eastern German IT-related service providers expect to release staff. About 13 percent plan with new personnel.

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