Growth In IT Spending Expected To Slow In 2007Growth In IT Spending Expected To Slow In 2007

Growth in IT spending is expected to slow next year because of a weakening in the U.S. economy, a research firm says.

Forrester Research on Tuesday predicted that IT purchases worldwide in 2007 will grow by 5% to $1.55 trillion, following two consecutive years of 8% growth. Sales in the United States, which is the largest IT market in the world, will also increase by 5%, the slowest growth rate since 2003.

Nevertheless, the moderate growth predicted in the United States is better than the 2% or less increase forecast by Forrester a year ago. "It all depends on what side of the glass you're looking at," Forrester analyst Andrew Bartels says. "Compared to our earlier forecast, this is actually an improvement. On the other hand, compared with 2006, it's going to be down a bit. Overall, it's neither a boom or a bust."

The reason for the better-than-expected performance is a lowering in energy prices. "If [soaring gas prices] had continued, it would definitely have taken a major toll on the economy," Bartels says. In addition, interest rates have flattened or dipped a bit.

Both factors have improved consumers' outlook on the economy, which means they're more apt to continue spending, which in turn means higher profits for companies and more IT purchases, Bartels says.

In analyzing spending, Forrester makes a distinction between IT purchases and IT spending. The former refers to goods such as computers or software, and to services such as systems integration or outsourcing; the latter looks at spending on an operating budget basis, defined as the depreciated value of capital purchases in goods, plus services purchased and IT staff costs. Technology vendors are most concerned with the former, and CIOs, who benchmark their IT spending on an income-statement basis, are focused on the latter.

Global IT spending is expected to be up by 6% next year to $2.02 trillion, compared with 8% this year. In the United States, IT purchases are forecast to rise by 5% in 2007 to $527 billion from 6% growth this year. The same percentages apply to IT spending in the United States, which is expected to reach $761 billion next year.

Globally, software purchases will grow only 7% in 2007, down from 10% growth this year, Forrester said. Growth in computer and communications equipment buying will slow to 4% and 3%, respectively, down from 6% and 9%. Purchases of IT services and outsourcing will rise 4% next year, down from 8% this year.

By region, the U.S. slowdown next year is expected to ripple through Canada and the rest of the Americas, resulting in a modest 3% growth rate, Forrester said. Western Europe is expected to see a 4% increase in IT purchases, while Eastern Europe, the Middle East, and Africa are predicted to spend 15% more.

Economic conditions in the United States are expected to have a severe impact on Asia Pacific countries, where purchasing is forecast to fall to 4% growth next year from a blistering 12% this year.