Forrester: Brace Yourself for Slow IT Growth

Published: December 15, 2008

by Timothy Prickett Morgan

A few weeks ago, George Colony, the chief executive officer at Forrester Research, one of the three big IT consultancies that does box counting and sales projections for all manner of IT goods and services, blogged about what 2008 was looking like in terms of IT spending and what he expected 2009 to look like. Now, Forrester has released the numbers behind the comments that Colony made.

You can read our original story about what Colony said here. But the latest numbers, which Forrester was kind enough to share with us, come from a 26-page report packed with lots of data and projections put together by Andrew Bartels, one of the analysts at the company that tracks IT spending trends.

As we now know, the economists who call such things have recently declared that the U.S. economy has actually been in a recession since December 2007. And given this data, it is remarkable that IT spending has held up as well as it has throughout 2008. Small and medium businesses, as usual, took the economic hit first, and it was only in the third quarter of this year that large businesses started to buckle under the strain. And as the months have progressed, Forrester has been redoing its forecasts for IT spending.

In the just-released forecast from December, Forrester now says that IT spending in the U.S. will only grow by 4.1 percent. Oddly enough, that is better than initial forecasts back in February, when Forrester pegged IT spending growth at only 2.8 percent; in the May forecast, it said growth would be 3.4 percent, followed by an August forecast where IT spending was expected to climb by 5.4 percent in 2008. What's amazing to me is the forecast for 2008 growth has held up, but by the time December got here, most of the year was done, so the numbers cannot change than much for 2008.

But that is definitely not the case for 2009. As 2008 has progressed, the forecasts for 2009's IT spending growth in the United States have gotten progressively worse. That doesn't mean these 2009 numbers will hold up--and more than Forrester's original low-ball guesses for 2008 panned out. This is a black art, at best, and Forrester can only look at what people tell it and build a model that takes into account macroeconomic forces. Anyway, here's what the curve looks like for forecasts for 2009. In the February 2008 forecast that was predicting very low IT spending growth in 2008, Forrester's analysts were guessing that 2009 would see 10 percent growth in budgets in the U.S. By the May forecast, that dropped to 9.4 percent growth, and in August, when the economy started looking pretty shaky, IT spending growth expectations for 2009 fell to 6.1 percent. In the December forecast, Forrester is now saying that IT spending growth next year in the States will only come in at 1.6 percent.

The model behind this projection assumes at gross domestic product will shrink by 0.5 percent in the third quarter of 2008 and accelerate in the fourth quarter (to an unspecified level) and through the first half of 2009, with a recovery in the second half of 2009.

Forrester is projecting that computer equipment sales will fall by 3.1 percent in 2009, with PC and server sales taking the brunt of the hit. Communications gear sales, says Forrester, will fall by 8/10ths of a percent. Software sales, which have been resilient during recessions, are starting to slow, and Forrester is expecting 3.4 percent growth in 2009 in this IT category--down from 5.8 percent growth in 2008. (The effects of open source and software as a service will come in here if the economy worsens, I think.) Forrester is also warning that IT consulting and system integration services "will hit a wall in 2009," according to its latest forecast report for IT spending in the United States. We're talking maybe 4.1 percent growth in services for 2008 and maybe 2.2 percent for 2009. Outsourcing services is, however, expected to rise a bit in 2009, but only a bit.

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