With a seasonally-adjusted annual rate of growth in turnover of 4.4 per cent, business developments amongst business-related service providers have stabilised in the first quarter of 2001. The downturn that set in in 2000, therefore seems to have been brought to a halt. Although it is somewhat premature to talk of an upward trend, expectations for the second quarter of 2001 do indicate improvement.

These are the findings of an economic survey carried out amongst business-related service providers by the Centre for European Economic Research (ZEW), Mannheim, in collaboration with the “Verband der Vereine Creditreform”, Neuss, in March and April 2001. This survey is undertaken on a quarterly basis and concerns approximately 1,000 businesses in the following sectors: tax advisers and certified public accountants, business consultants, architects, technical planners, vehicle rental companies, machine rental companies, cargo handling and logistic firms, software providers, advertising agencies and waste management firms.

The seasonally-adjusted annual rate of growth in turnover of business-related service providers in East Germany totals 2.2 per cent. East German service providers were affected by the economic downturn in 2000 to a greater extent than their Western German counterparts. These businesses are now, however, slowly recovering. Overall, other indicators of economic development amongst business-related service providers provide a consistent picture. In comparison to the same quarter in the previous year, returns have increased. This is the case despite the fact that demand for services has fallen considerably. The rate of employment of new personnel has fallen; more businesses, however, continue to employ new staff members, than they let go.

Overall, the development in the first quarter of 2001 has once again strengthened the interdependence between business-related service providers and the manufacturing industry. German industry also experienced positive economic growth at the beginning of the year, and was therefore able to resist the economic downturn which set in in the third quarter of 2000. The price of crude oil, however, remains a significant source of uncertainty amongst economic experts. Prices are markedly lower than the highest value achieved in September 2000, but they nonetheless continue to inhibit domestic demand. In addition, the economic downturn in the US has led to falls in foreign demand.

A proportion of economic experts predict an upward trend in overall economic development. Experts accordingly expect to see decisive impulses set by financial policy, which should cushion the impacts of unfavourable developments in the international economic sphere. Not all business-related service providers share this positive view, however. Business-related service providers in West Germany expect that turnover and returns will significantly increase in the medium-term. Their East German competitors, however, take a more pessimistic view of the coming three months.

The late onset of winter in January, led to curtailments in the construction industry. These were to be seen, above all, amongst architects, as well as technical advisers and planners. In the first quarter of 2001, significantly more businesses in these sectors reported decreases in turnover since the previous quarter than was the case in the final quarter of 2000. The profit situation of these businesses has also become more strained. As a result of this, considerably more businesses in this sector have let more staff members go, than they have employed.

In addition to these two sectors, more businesses in the marketing industry, vehicle rental and waste management sectors have let more staff go, than they have employed. It is quite common that the labour market in the waste management sector should be somewhat strained, this is a result of the restricted economic growth in this sector. Although the business cycle picked up in 2000, the extent of growth was still too low for it to have a sustainable impact on the employment behaviours of businesses in this sector.

In the vehicle rental sector, however, the fact that on balance, more businesses have let more staff members go, than they have employed, is extremely unusual. Apart from anything, these businesses rank in the mid-field amongst all business-related service providers in terms of their overall business development. In the current quarter, these businesses, along with business consultancies, count amongst those sectors with the highest growth in turnover. Unlike business consultancies, however, the positive developments in turnover amongst vehicle rental companies, is not reflected in their profit situation.

Software providers consider their economic situation for the first quarter of 2001 to be somewhat suppressed in comparison to the high rates of growth seen in 2000. Although the rates of growth of turnover and returns have fallen slightly, these businesses still represent one of the most strongly growing sectors. Falls in turnover and revenue are the result of the near saturation of some markets in terms of hardware. This has an effect on the demand for closely related  services provided in the software sector. Amongst business-related service providers, for example, almost 100 per cent of workstations are already equipped with a computer. Any investments made in this area therefore concern replacement hardware. Software providers, however, see no reason to worry. Their expectations for the second quarter of 2001 are optimistic. They expect that the increased use of Information and Communication Technologies in all sectors, and the associated growth in demand for networking solutions, shall boost demand for their services.

Contact

Professor Dr Alexandra Spitz-Oener, Phone: +49(0)621/1235-293, E-mail: spitz@zew.de

Date

19.04.2001

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