Bleak Outlook for European IT Spending Through 2013

August 6, 2012 Jenny Thomas

America has been trying to claw its way out of the current recession for years now, so it’s easy to see where we might have lost sight of the fact that the United States is not the only place on the planet with financial woes. The debt crisis currently in swing across Europe is showing little sign of turning around, according to a recent information and communications technology (ICT) forecast from Forrester Research.

In the report, Forrester is predicting that ICT purchases by European business and governments will show an almost imperceptible 1.2 percent in 2012 in euros, which will result in shrinking the continent’s share of the market and making it distinctly smaller than that of the Americas and the Asia/Pacific regions. In contrast, during 2012 the U.S. and Asia/Pacific areas are both on track to grow by more than 6 percent

Sadly, the fact that the U.S. is growing again, if the Forrester researchers are on the money with these predictions, does not mean the American economy will be untouched by economic downturn in Europe. The weakness of the euro when measured against the U.S. dollar means the European ICT market will shrink by almost 6 percent in 2012, with negative impacts on the reported revenues of U.S. vendors with significant European sales.

No matter what part of the world you live in, the reaction to recession in business is universal, and CIOs are expected to hunker down and cut or constrain their purchases of tech goods and services in 2012, as well as reduce their new project portfolios. The predicted 1.2 percent (local currency) growth in the European ICT market will be reflected in all the tech categories. IT outsourcing and hardware maintenance will do the best, with 3.3 percent growth, followed by IT consulting and integration services, which will grow by 2.8 percent, according to Forrester’s numbers. Software is also predicted to see slight positive growth at 1.7 percent, as will telecommunications services at 0.9 percent. Business and government spending on telecommunications services will rise by 0.9 percent, with the decline in wireline usage offset by increased spending on wireless services.

Tech products, including computer equipment, communications equipment, and licensed software, tend to be the first items to get axed in recessions, and are predicted to bear the brunt of the slowdown in the European tech markets. In euros, Forrester researchers say communications equipment purchases aren’t expected to fare well with a 1.7 percent decline, and computer equipment sales are predicted to be flat in 2012, hovering at 2011 levels.

When we come in for a closer look at the map, we see European countries south or west of Germany in or near recessions. In Greece, Italy, Portugal, and Spain, deep recessions are expected to cause steep cuts in tech buying. In France, the Benelux countries, and the United Kingdom near or in mild recessions will lead CIOs to hold spending flat. In Germany, the Nordics, Switzerland, Austria, and Central Europe, weak but positive economic growth allows some room for cautious spending.

Among the three larger markets of France, Germany, and the United Kingdom, higher levels of adoption of new technologies of cloud computing, smart computing, and mobile technologies will counter some of the effects of slow growth.

So what does the economic future hold for Europe? In his blog, Andrew Bartels, vice president and principal analyst at Forrester, made this prediction: “The European Union and the European Central Bank will patch together a set of policies that will keep Greece in the euro, provide financing to keep Ireland, Italy, Portugal, and Spain functioning as economic reforms take hold, and offer enough stimulus to prevent something worse than the current, mild recession.”

The outlook for 2013 is brighter, with the European tech market improving slightly to 3.1 percent growth as measured in euros. Forrester is forecasting that software will lead the tech market with 5.5 percent growth, followed by IT outsourcing with 3.4 percent growth. However, computer and communications equipment will have weak recoveries, with 3.9 percent and 2 percent growth, respectively.

To be competitive in the future, Forrester analysts are advising European CIOs not to slash and burn, but instead push to cut other areas of cost and create as much room as possible to fund new technologies like mobility, smart computing, and cloud computing.

The report, European Information And Communications Technology Market 2012 To 2013 — Spending Growth Comes To A Halt As Europe Slides Into Recession, is available for purchase here on the Forrester website.