Global IT spending growth grinding down to crawl: IDC

Stan Beer
Thursday, 13 November 2008 01:01

IT Industry - Market

The global financial crisis has bitten the IT sector and will slam the brakes on spending in the coming year according to a new forecast from analyst group IDC. What's more, particularly hard hit will be the developed economies and the hardware sector.

Recent growth forecasts from IDC, although not particularly rosy, now look positively optimistic compared to newly released figures. The IDC report, Economic Crisis Response: Worldwide IT Spending 2008-2012 Forecast Update , provides a top-line summary of IDC's latest forecast for IT spending, which has been revised since the financial crisis first hit in September 2008.

According to the revised forecast, worldwide IT spending will grow 2.6% year over year in 2009, down from IDC's pre-crisis forecast of 5.9% growth. In the United States, IT spending is expected to decline to 0.9% in 2009, much lower than the 4.2% growth forecast in August.

Despite the new pessimistic figures, however, IDC remains upbeat about the overall outlook for IT going forward.

"Although all the economic forecasts went from up slightly to down drastically in a matter of days, the good news is that IT is in a better position than ever to resist the downward pull of a slowing economy," said John Gantz, chief research officer at IDC.

"Technology is already deeply embedded in many mission-critical operations and remains critical to achieving further efficiency and productivity gains. As a result, IDC expects worldwide IT spending will continue to grow in 2009, albeit at a slower pace."

On a regional basis, spending growth in Japan, Western Europe, and the United States will hover around 1% in 2009.

In contrast, the emerging economies of Central and Eastern Europe, the Middle East and Africa, and Latin America will continue to experience healthy growth, but at levels notably lower than the double-digit gains previously forecast.

On a sector basis, software and services will enjoy solid growth while hardware spending, with the exception of storage, is expected to decline in 2009.

Looking beyond 2009, IDC expects IT spending to make a full recovery by the end of the forecast period with growth rates approaching 6.0% in 2012. Despite these gains, IDC estimates that more than $300 billion in industry revenues will have been lost due to slower spending over the next four years.

In light of the uncertainties associated with the ongoing financial crisis, IDC also developed a downside scenario to help executives plan for a situation where the impact of the crisis is more pronounced.

In this worst case scenario, IDC lowered the forecast for worldwide GDP growth in 2009 to 0.3%, which is 1.5% lower than the current forecast and worse than any year since World War II. This produced a forecast of 0.1% growth in worldwide IT spending in 2009 with negative growth in the United States, Western Europe, and Japan.

"Although the revised forecast and the downside scenario both reflect a grim outlook for global economic growth over the next several years, IT spending actually fares well when compared to the previous downturn after the events of September 11, 2001," said Stephen Minton, vice president, Worldwide IT Markets and Strategies at IDC.

"Companies currently don't have the asset and spending 'overhang' that enabled them to put off purchases after Y2K and the dot-com bubble. As a result, there will be greater pressure for them to continue making IT investments in order to stay competitive."

The forecast uses economic forecast data from the International Monetary Fund, a set of baseline macroeconomic assumptions developed by IDC, and market-specific inputs regarding vendor product cycles, supply availability, and technology adoption patterns. The report also provides a downside scenario for worldwide IT spending based on a significantly lower economic outlook.