ICT Sector Faces Economic DownturnInformation Economy
Consequences of the Coronavirus Pandemic
The economic sentiment in the information and communication technology sector (ICT) in Germany fell to a historic low in the first quarter of 2020. The ZEW sentiment indicator for the companies in the ICT sector plunged to a reading of 51.1 points as a result of the coronavirus pandemic, falling by more than 17 points compared to the previous quarter. This is the worst assessment of the economic climate and the sharpest drop recorded since the survey was started in 2011. The ZEW Economic Sentiment Indicator for the Information Economy is the result of a survey conducted by ZEW Mannheim in March 2020.
The sharp decline in the sentiment indicator is the result of a dramatic deterioration in both the business situation and business expectations. The sub-indicator for the business situation fell by 16 points compared to the previous quarter, reaching a current total of 51.7 points. The fact that this figure is only slightly above the critical 50-point mark indicates that only a small majority of companies expect to see a positive economic development in the first quarter of 2020.
After falling by almost 19 points, the sub-indicator for business expectations for the coming quarter currently stands at 50.5 points, which means that the share of respondents who are optimistic about future economic developments is slightly higher than the share of those who are pessimistic. One in three ICT firms in Germany anticipates a decline in sales and demand for its products and services in the second quarter of 2020. “Although we are currently more dependent than ever on a functioning digital infrastructure, the coronavirus crisis does not spare the system-relevant ICT sector either,” says Professor Irene Bertschek, head of the ZEW Research Department “Digital Economy”.
More demand for ICT services during coronavirus crisis
In the survey, ICT hardware providers were much more pessimistic about the business situation and business expectations than ICT service providers. “While ICT hardware services usually require physical presence as machines need to be operated, ICT service providers are more likely to continue their business activities remotely due to their high level of digitalisation,” explains ZEW expert Dr. Daniel Erdsiek from the “Digital Economy” Department. As ZEW survey results have shown, ICT service providers already made much more use of remote-work arrangements in 2019 than hardware manufacturers. In addition, the coronavirus crisis has boosted demand for ICT service providers, as many business clients are increasing their investment in IT security measures and remote access for their employees who now have to work from home.
The sentiment indicator for the ICT sector is the result of a quarterly businesses survey conducted by ZEW’s Research Department “Digital Economy” among firms in the information economy. The information economy consists of the sub-sectors information and communication technologies (ICT), media service providers and knowledge-intensive service providers.
About the ZEW Business Survey and the Economic Sentiment Indicator
About 5,000 businesses in the information economy with a minimum of five employees participate in the quarterly survey conducted by ZEW Mannheim. The companies surveyed belong following sub-sectors: information and communication technologies (ICT), media service providers and knowledge-intensive service providers. An overview of the ZEW Business Survey in the Information Economy (in German) is available here.
The ZEW Sentiment Indicator for the Information Economy is composed of the four components turnover situation, demand situation, turnover expectations and demand expectations (each in comparison with the previous and following quarter). They are equally factored into the calculation. The geometric mean of the business situation and the business expectations is the value of the ZEW Economic Sentiment Indicator. The sentiment indicator can take on values from 0 to 100.