FT.com / Companies / IT - IT spending forecasts cut on recession fears

Read an interesting news item from Financial Times on IT spending and the US recession. It looks likely that the US is slipping into a recession and the growth of IT Industry will slow down to a trickle. We have already seeing the effects of the same on the Indian IT industry, salary increments are a thing of the past and pink slips have become the norm. Today uncertainity reigns across the IT Industry in India and Hyderabad is no exception.


IT spending forecasts cut on recession fears
By Maija Palmer in London for FT.com

Published: February 10 2008 22:05 | Last updated: February 10 2008 22:05

Forecasts for global IT spending in 2008 have been cut, as fears of a recession in the US puts the brakes on growth.

Global spending on IT goods and services is expected to grow to just $1,695bn in 2008, a 6 per cent increase on last year, according to Forrester Research, the market research group. This represents a significant slowdown from 12 per cent growth last year.

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These include news last month that the US economy grew at just 0.6 per cent in the fourth quarter, its slowest pace since 2002, and figures this month showing a fall in employment.

“Historically, there has always been a very strong correlation between the economy and technology spending,” said Andrew Bartels, author of the Forrester report.

He added: “Our forecast is premised on a mild recession in the US economy in the first two or three quarters of 2008, caused by a shrinking housing sector and tapped-out consumers reining in their purchases due to higher interest rates, energy costs and consumer debt services. Anecdotally, we are hearing that this is beginning to filter through to chief information officers, and it is clear the level of caution is rising.”

Last week Cisco Systems, a bellwether for the technology industry, said it had seen a rapid slowdown in orders in January.

“The Cisco announcement was coincidental to the revision in our forecasts, but it was confirmation that the slowdown we were expecting is in fact starting to happen,” Mr Bartels said.

IT spending growth in the US, which accounts for about a third of the global total, is expected to slow to 2.8 per cent, from 6.2 per cent growth last year.

Spending in Asia is expected to be about 9 per cent, the strongest region for growth, but still representing a slowdown from 15 per cent growth last year.

In Europe, IT spending growth will fall from 15 per cent last year to 5 per cent.

The hardest-hit sectors will be computer and communications equipment, with software and services seeing stronger growth. Mr Bartels stressed that the technology slowdown would not be as severe as in 2001, when spending actually declined. “The tech sector will still grow marginally better than the overall economy. This is not a technology bust, it is a slowdown in growth,” he said.

Forrester expects growth to accelerate again in 2009, as the economy improves and the release of new software from companies such as SAP and Oracle help kick-start corporate spending.