Germany: New Bitkom-ifo Digital Index Shows Excellent Business Climate for the ICT Industry

In the German digital economy, business is doing splendidly. Despite general economic risks, companies in the IT and telecommunications (ICT) industry currently assess their business situation as very good. However, their expectations for the coming months are less optimistic. These are the core findings of the new Bitkom-ifo Digital Index, which the digital association Bitkom and the ifo Institute jointly presented today in Berlin. Calculated from the business situation and business expectations of the ICT industry, the index rose by 2.2 points to 27.0 points from April to May.

The business situation, already quite favorable, improved by 2.8 points to 46.7 points, and expectations for the coming months have risen by 1.7 points to 8.8 points. However, this marks one of the lowest levels for the latter since the financial and economic crisis in 2009. Expectations for the development of employment (32.0 points) and of prices (11.4 points) are both close to the long-term maximum.

“We are delighted to present the Bitkom-ifo Digital Index, the first significant indicator of the business climate in the IT and telecommunications industry,” says Bitkom President Achim Berg. “There is currently much discussion about economic risks – the trade conflict between the US and China, Brexit, and the upheavals in banks and the automotive industry – but despite it all, the business situation in the digital sector remains very good. One thing that stands out is that companies have been looking at the future with more caution for a few months now. At the moment, the situation is better than the mood.”

The ifo President Clemens Fuest comments on the industry indicator, which is being published for the first time: “The new index consists of 400 manufacturers, dealers, and service companies. IT service providers account for 60.5 percent, telecommunications service providers for 9.8 percent, equipment retailers for 8.4 percent, manufacturers of electronic components for 6.5 percent, and so on. Our Digital Index covers an industry that plays a key role in the development of the German economy.”

Since January 2017, the business situation has stayed above the high 40-point mark without interruption, reaching an all-time high of 52.7 points in October 2018. In contrast, expectations have been falling on average since around mid-2017, and this has caused the Digital Index to fall by 11.2 points since July 2017 (when it was 38.2 points). The time series for the Digital Index go back to 2006.

Digital Industry Consistently Rates Business Climate Better Than the Economy as a Whole

For several years, the Bitkom-ifo Digital Index has continuously and significantly outperformed the ifo Business Climate for the German economy as a whole. Companies in the ICT sector consistently rate their situation as better than the economy in general. The basic development of the ifo Business Climate and the Bitkom-ifo Digital Index is largely similar; for example, since 2006, the Bitkom-ifo Digital Index and ifo Business Climate have developed in the same direction in two out of three of the monthly measurements (65 percent). In May 2019, however, the ifo Business Climate fell by 2.9 points to 14.1 points and thus moved opposite to the Bitkom-ifo Digital Index. The reason for this is that most sectors are feeling much greater pressure from the general economic risks than the ITC sector is.

Note on methodology: The Digital Index is based on the monthly ifo Business Survey and is calculated from the geometric mean of the business situation index and the business expectations index. It incorporates data from the digital sector, which consists of enterprises in the manufacturing, trade, and services sectors. These enterprises include manufacturers of IT and communications technology, consumer electronics, providers of software and IT services, telecommunications services, and ICT wholesale and retail. The index is presented as a balance. Figures are weighted by workforce size.