Digital sector

Digital sector

Business in the digital sector was slightly slicker in October than it was in September, but uncertainty about the prospects for the coming months has increased. IT and telecommunication companies rated their current business situation at 34.9 points in October which is four points higher than in September. The business prospects for the coming months have nonetheless dropped by a good three points to minus 18.4 points. This comes after a decrease of ten points already in September, bringing the Bitkom ifo digital index down to minus 15.5 points. This index visualises business sentiment in the digital sector and is composed of assessments of the current business situation and expectations for the next three months. It is currently at 6.5 points, after nudging up slightly on the previous month (6.4 points). According to the ifo Institute, business sentiment for industry overall is at minus 15.6 points. While this shows that the digital sector is proving to be much more resilient to crises than German industry overall, macroeconomic trends are still leaving their mark. Many digital companies are concerned that business will turn down in the coming months under the strain of persistent inflation, the energy crisis and declining demand.

The largest obstacle to business in the industry is still the shortage of skilled staff. While the index went down by 2.4 points in October compared to the previous quarter, at 50.6 points, it remains very high. Insufficient demand is less frequently regarded as a problem with the index dropping 0.3 points down to 24.6 points. Financing difficulties are almost irrelevant, remaining steady at the low level of three points (down one point).

Information and communications technology companies are still planning on increasing their workforce. Employment expectations were at 20.7 points (minus 3.1 points), so the vast majority of companies plan to increase their staff in the next three months. The demand for skilled digital workers is high and has continued to climb. A large majority of companies expect the prices of their products and services to rise. Already on a high level, the index increased another 3.8 points to 51.2 points.

The digital sector is facing higher purchase prices for energy, raw materials, inputs and components which have barely been passed on to its customers as yet. IT and telecommunication companies reported that they have only passed on around 17 percent of the higher costs to their customers on average so far. Digital companies are showing much more restraint in this respect than industry overall which has passed on an average of 34 percent of the cost increases. Companies in the digital sector plan to continue passing on only a moderate proportion of their rising costs. In the next six months, the digital sector plans to add around 35 percent of its cost increases on to consumer prices compared to 50 percent for the industrial sector as a whole.

The reasons behind the reluctance of the digital sector to pass on the rising costs are primarily competitive pressure (66 percent) and long-term contracts (56 percent) as well as weaker demand and lower willingness to pay generally (32 percent). Nine percent of companies reported that the administrative burden of adjusting their prices had been too high so far. Three percent of companies cannot set their prices themselves on account of, e.g., regulatory interventions.

Contact: Dr.Florian Bayer / Phone: +49 30 2757 6162 / Mail: f.bayer@bitkom.org