European Economic Crisis To Hurt IT Spending

The economic woes in Europe will have a negative impact on worldwide IT spending for the rest of the year, according to research firm Gartner.

Gartner analysts in a report July 1 said they expect global IT spending in 2010 to hit $3.35 trillion (£2.2tr). That would be an increase of 3.9 percent over the $3.225 trillion that was spent in 2009, but a drop from the 5.3 percent growth Gartner had predicted in the first quarter.

Much of that decline is due to the devaluation of the euro vs. the US dollar, according to Gartner.

“The European sovereign debt crisis is having an impact on the outlook for IT spending,” Gartner analyst Richard Gordon said in a statement. “The US dollar has strengthened against the euro during the second quarter of 2010, and this trend will likely continue in the second half of 2010, which will put downward pressure on US dollar-denominated IT spending growth.”

Struggling euro

The euro has been struggling since earlier this year, spilling out from countries like Greece and Spain to impact the entire European Union.

IT spending in both the government arenas and private sectors will be hampered as agencies and companies look to reduce debts and companies struggle with new regulations, Gordon said.

“Longer-term, public-sector spending will be curtailed in Europe as governments struggle to bring budget deficits under control during the next five years and to reduce debt during the next 10 years,” he said. “Private-sector economic activity will also likely be hindered because of the direct impact of austerity measures on key government suppliers and the indirect impact caused by the ‘ripple effect.’”

Gordon said government will need to develop policies that will help stimulate investment, particularly in IT.

IT investment needed

Hardware spending is expected to grow to $365 billion (£240bn) in 2010, a 9.1 percent increase over last year. The PC market looks healthy and will continue to grow into 2011, Gordon said, which is important given that PC purchases account for two-thirds of all hardware spending.

“Consumer shipments will continue to be powered by strong mobile PC uptake, while professional shipments will be buoyed by a new replacement cycle and migration to Windows 7,” he said.

The story is different for software, services and telecommunications, where the US dollar’s appreciation against the euro will hinder US dollar-denominated growth this year.

“Our latest IT spending forecast reflects the fact that the global economic outlook is stable but vulnerable to shocks in key regions and industries, which means that IT spending decisions are still scrutinised for value,” he said.

In businesses, CEOs are calling for a return to growth this year, but chief financial offers are only seeing modest growth in IT and just enough new money in the budget for “essential enterprise IT spending,” he said.

In the consumer space, while confidence is growing, consumers are still worried about their jobs.