2008 IT spending forecast again cut by Forrester

Firm lowers expectations for second time since October

The worsening U.S. economic situation has moved analyst firm Forrester Research Inc. to lower its expectations for U.S. and global IT spending for the second time in less than two months.

The 28-page "Global IT 2008 Market Outlook" report released today by the Cambridge, Mass.-based company, predicts that U.S. business purchases of IT goods and services will grow by 2.8%, down from an expected 4.6% growth rate that Forrester predicted in December. The December number was a reduction from Forrester's original 2008 IT goods and services spending estimate made last October, when the company predicted 8% spending growth for the nation's businesses.

Andrew Bartels, a Forrester analyst and the author of the new report, said the updated forecast was issued because of worsening economic indicators in the U.S. market and similar changes in the European and Asian-Pacific economic outlooks as the rates of spending growth have lowered.

"At the time of the December report, the data was suggesting that the U.S. would skirt a recession and not necessarily go into one," Bartels said. "We made a forecast based on that. Now in the past two months or so, there has been clear evidence that the U.S. economy is in fact weaker."

Among the economic indicators are federal economic reports, including fourth-quarter U.S. gross national product growth (total of all goods and services sold in the U.S.) that listed GNP growth of 0.6%, down from 4.6% the previous quarter, Bartels said. On average, GNP growth is between 2.5% to 3%, he said.

The 0.6% figure is "right on the edge of negative growth of a downturn," he said, with a recession defined as two consecutive quarters of negative growth.

Also causing Forrester to lower its forecast was a reported January drop in U.S. employment of about 17,000 positions in the total workforce, he said. "There's always been a lot of forecasters who have lowered their expectations in the U.S., but now they are actually forecasting a recession of some kind. There's not a certainty of it, but a growing prospect of it."

Over the past 60 years, data recorded for business technology purchases has shown a "strong correlation with growth in the technology market and growth in the economy" overall, Bartels said. "It's been a good predictor."

Globally, Forrester projects an IT spending growth rate of 6%, compared to a 12% growth rate in 2007, he said.

"It's a substantial drop in growth but it's not a decline," he said. "It's a slowdown." Because the U.S. represents about one-third of the global technology market, the U.S. forecast reductions are the cause of much of the global reductions as well.

The updated forecast expects that vendor revenues on average will be higher in 2008 than they were in 2007, but that their growth rates will be lower. That compares to the IT bubble crash in 2001 to 2003, when companies saw actual declines in revenues, he said.

The losers in the updated forecast are likely to be IT hardware companies, he said, which could see flat or declining growth rates, while software vendors are likely to hold up better with 8% to 9% growth based on Forrester's analysis.

Copyright © 2008 IDG Communications, Inc.

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