Service Sector: Business Climate Indicator Remains Almost Unchanged

In the service sector the steady deterioration in the business climate ground to a halt. Between November and April the indicator fell by 9.5 points and almost remained at its previous month's level in May. Sentiment among German service providers nevertheless remains strong, since the business climate indicator - presently at +26 points - is significantly higher than its long-term average of +18.1 points. Service providers remain highly satisfied with their current business situation. Although their assessments were no longer quite as positive as last month, the corresponding balance value has been fluctuating for over a year at between 40 points and - apart from an exceptionally positive November - around 45 points. In view of this positive business situation, a decreasing share of service providers expects any further improvement in their business situation in the short term. The corresponding balance dipped below its long-term average in March, but rose above it again in May. It was the first clear improvement in the outlook since last September. Overall, service providers reported that developments in revenues were positive, despite a clear downturn in the indicator in May. This favourable development becomes clear from company reports on trends in revenues compared to last year. The German Federal Statistics Office states that in the last quarter for which data are available (Q4 2016), turnover increased by 3.3% compared to the same period of the previous year. Survey participants' reports on trends in revenues point to a positive first quarter. However, company expectations in terms of demand suggest that growth rates, at least, will not continue to rise. Service providers recently expressed their satisfaction with their order situation, which is far higher than the long-term average. Company reports on trends in staff numbers point to above-average recruitment rates of additional staff. Since German service providers' willingness to recruit remains above average, employment rates should continue to rise this year.