Service Providers in the Information Economy Look to the Future with Confidence
ResearchService providers in the information economy are looking towards the coming quarter with confidence. This is reflected in the renewed increase in the ZEW-IDI sub-indicator for business expectations, which, with a value of 69.4 in the third quarter of 2004, has now almost reached its highest ever value of 70.0 which was achieved in the third quarter of 2003.
In comparison to this positive outlook, service providers in the information economy take a rather cautious view of their current business situation. The sub-indicator for business situation decreased slightly, falling by two points from the score achieved in the second quarter of 2004. With a value of 56.5, however, the indicator continues to lie above 50 index points.
This finding is the result of a business survey carried out in September 2004 among service providers operating in the information economy. The survey was conducted by the Centre for European Economic Research (ZEW), located in Mannheim, in cooperation with the credit reference agency Creditreform, located in Neuss. Approximately 1,100 companies took part in the survey. Service providers in the information economy include those active in the field of Information and Communication Technology (ICT), (companies providing software and IT-services,specialisedICT trade and telecommunication services) as well as knowledge-intensive services(companies active in the fields of tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as marketing).
Together, the two sub-indicators suggest that service providers in the information economy have experienced economic stabilisation in the third quarter of 2004. The ZEW-IDI now totals 62.6 points. Following a period of economic downturn, this figure rose for the first time in the third quarter of 2004. It was at this point that service providers in the information economy benefited from the economic recovery which was taking place in the manufacturing industry. At the start of the third quarter of 2004, the downturn in the industrial sector slowed. This was a result of a weaker rate of growth in foreign demand. The impacts of this development are now being felt by service providers in the information economy. The effects, however, are moderate. A greater number of firms continue to report an increase, rather than a decrease, in turnover. In addition, the majority of firms perceive a positive, rather than negative, growth in demand. Having said this, service providers in the information economy found themselves forced to reduce prices in order to remain competitive and this is reflected in the figures relating to the development of earnings. Furthermore, on balance, the majority of companies admit to having reduced the personnel numbers.
Companies located in East and in West Germany experienced very different developments. Whilst the economic development of firms in West Germany can be said to have been only marginally affected by the moderate economic developments in the manufacturing industry, firms in East Germany were affected to an even lesser extent. In East Germany, the majority of companies report a decline in turnover and in demand. Due to a sharp decline in prices, the primary outcome has been a worsening of the development of earnings in these firms. Above all, the proportion of companies in East Germany, which have plans to reduce personnel numbers, is particularly high.
There are also differences between companies located in East and in West Germany in terms of their expectations regarding the development of turnover in the fourth quarter of 2004. In both regions, the majority of firms are expecting to achieve a positive turnover. When it comes to their expectations regarding future developments in demand and earnings, however, firms in East Germany are more pessimistic. Particularly notable is the high proportion of East German companies which intend to reduce personnel numbers.
As well as regional differences, stark discrepancies also exist between the economic developments experienced by companies operating in the individual sectors of the information economy. In comparison to those figures taken from the third quarter of 2004, it is particularly notable that service providers operating in the telecommunications sector, as well as tax consultancies and accountancy firms and firms operating in the research and development sector, have provided particularly positive estimates of turnover. In the case of firms involved in research and development, however, this is uniquely reflected by a positive view of developments in earnings. In the case of specialist ICT-traders and architecture firms, a majority of companies generally report a negative turnover and negative development in earnings. Surprisingly, a greater number of management consultancies report a negative development in turnover and demand, than do a positive development. This is the case despite the fact that the balances are only slightly negative. In the past, these sectors have beenrecognisedfor their tendency to exhibit positive economic development, which, in comparison to the development experienced by service providers in other sectors of the information economy, showed only marginal interdependence with the developments taking place in the economy as a whole. This picture also corresponds with the estimates relative to the earnings performance provided by management consultancies; on balance, a majority of firms view their earning development as having been positive.
Additional Information about ZEW-IDI
The ZEW-IDI is calculated on the basis of four components: current turnover and current demand and expected turnover and expected demand (each component is compared to the preceding component from the respective succeeding quarter.) All components are weighted equally in the calculation. Current turnover and demand form a sub-indicator which reflects the business situation. Expected turnover and demand form a sub-indicator which reflects business expectations. The geometric mean of the business situation and the business expectations provides the value of the ZEW-Indicator for the service providers of the information economy. The sentiment indicator may have a value between 0 and 100. Values exceeding 50 are indicative of an improvement in the business situation compared to the previous quarter, values less than 50 hint at a worsening in comparison to the previous quarter.
Overview of the ZEW/Creditreform business survey
Description of the extrapolation method used by ZEW/CREDITREFORM
Contact
Prof. Dr Alexandra Spitz-Oener, Phone: +49(0)621/1235-293, E-mail: spitz@zew.de