Service Providers of the Information Society - Economic Upswing and Positive Employment Trends Continue

Following a positive start to the year, IT-related service providers are optimistic about the second half of 2006. In the second quarter of 2006, the ZEW-IDI, the sentiment indicator for the economic sector IT-related service providers, grew by 6.3 points, compared to the first quarter of the year, and thus reached a total of 69.6 points. The sub-indicator indicating the current business situation is mainly responsible for the increase. Compared to the first quarter of 2006, this sub-indicator grew by more than 10 points to 65.1 points. The optimism among the companies of this economic sector is also reflected in the development of employment. Here, the positive Trend has continued for the third consecutive quarter.

This is the result of a business survey among IT-related service providers conducted by the Centre for European Research (ZEW), Mannheim, in cooperation with the credit reference agency Creditreform, Neuss, in June 2006. About 800 companies participated in the 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 of 2006, the sub-indicator reflecting the business expectations of the IT-related service providers increased for the second time in a row. In comparison with the first quarter of 2006, the indicator grew by 0.7 points reaching a total of 74.5 points and thus slightly missed the historic high recorded in the third quarter of 2005 (75,2 points).

In the second quarter of 2006, more than half of all companies were able to generate higher revenues than in the first quarter of the year. They expect their turnover to continue growing in the third quarter of 2006. In the economic sector service providers of the information society, price pressure also eased considerably in the second quarter of 2006. For the first time since the third quarter of 2003, the share of enterprises able to obtain higher prices outweighs the proportion of companies with falling prices. For the second quarter of 2006, the questioned IT-related service providers also have a net positive view on the demand situation and the future development of demand.

The optimism among service providers of the information society is also reflected in the development of employment. The trend has been positive since the fourth quarter of 2005 and continues rising. In the second quarter of 2006, the share of companies in the economic sector of IT-related service providers hiring new staff again outweighs the share of enterprises dismissing employees. However, the positive net amount is solely based on the situation in western Germany. Almost half of West German companies in the regarded branch state that in the second quarter of 2006 the numbers of staff grew compared to the first quarter of the year. About two thirds of them expect to further increase their staffing levels in the third quarter.

For the first time since ZEW began to analyse the economic situation of IT-related service providers, the balance of changes in staffing level has been positive in all branches throughout Germany. This positive development is particularly pronounced among knowledge-intensive service providers. Whereas in the past the share of technical consultants and planners dismissing employees regularly outweighed the share of those recruiting staff, in the second quarter of 2006 about 55 per cent of the companies recorded increased staff numbers. In contrast, only 15 per cent of the service providers confirmed declining staffing levels. The positive employment trend of the first quarter of 2006 also continues among architects and advertising firms.

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.

Remarks on the 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

Dr. Jenny Meyer, E-mail: meyer@zew.de