Forrester Predicts IT Spending Slowdown in 2007

Published: December 12, 2006

by Timothy Prickett Morgan

It's that time of the year again. One IT budget cycle is ending, and another one is beginning, and everyone is trying to figure out if the market for information technology will grow again in the coming year. Growth in IT spending is a leading indicator for all of the vendors, companies, and IT personnel who participate in the commercial computing realm, so there is a lot riding on how IT spending goes up or down in any given year.

The analysts at Forrester Research are the early birds for IT spending forecasts for 2007, but that forecast was embedded in a comparison and contrast between IT spending in the United States, Canada, and Europe.

According to Forrester's analysis, the increase in IT spending in 2006 was somewhat mixed, and the prospects for growth are better in 2007 compared with the United States and Canada. While the countries of Western and Central Europe have more collective gross domestic product than the United States--GDP is a measure of the value of all goods and services sold in an economy--IT spending among companies in Europe will hit $565 billion in 2006, considerably smaller than the $721 billion that companies in the United States will spend this year on IT. If you are rooting for the European market, the 5.1 percent growth in IT spending in Europe almost matched the 5.8 percent growth that Forrester is projecting for 2006 in the United States. Forrester is expecting a slowdown in IT spending in both geographies in 2007, with the European market cooling a little to $586 billion in sales, up 3.7 percent, compared to $742 billion in the United States, up only 2.9 percent.

"While U.S. IT spending has been growing faster than European IT spending in recent years, European IT spending growth is now poised to exceed that in the U.S.," explains Andrew Bartels, a vice president at Forrester who is responsible for Forrester's North American IT spending forecasts. "With European economic growth showing signs of improvement while the U.S. economy is likely to slow down, 2007 will be the year when European IT spending grows more rapidly than that in the U.S. or Canada."

Forrester's analysts say that the bigger European and multinational companies that are headquartered in Europe are just as sophisticated as their American counterparts when it comes to IT spending, but that small and midrange companies as well as state and local governments in Europe tend to lag their counterparts in America when it comes to IT investments.

On a country by country basis, Forrester is predicting that the businesses and governments in the United Kingdom will spend 61 billion euros (about $77 billion) on IT in 2006, followed by Germany with 57 billion euros ($72 billion) in spending. IT spending in France is about two-third of that in the U.K, and Italy is about two-thirds of that in Germany, according to Forrester (which is $51.5 billion and $48 billion, respectively). Spain, the Netherlands, and Switzerland are expected to spend between 15 billion euros and 20 billion euros in 2006, with the remaining countries in Western Europe spending between 5 billion to 10 billion euros each. (That's Belgium, Sweden, Denmark, Austria, Poland, Finland, and Norway in this category, and that is $6.3 billion to $13 billion in U.S. dollars.) All of the other countries in the region are expected to spend less than 5 billion euros. So while Russia, Ukraine, and other Eastern European countries have very high growth in IT spending, the numbers are still pretty small.