Forrester: 2008 to be a slow year for IT spending

Forrester Research has revised projections for IT investment in 2008 down from previous research published in October, predicting the year ahead will be a slow one both in the U.S. and globally.
In the report, "U.S. And Global IT Spending And Purchases In 2008: Will The Grinch Of A Slowing US Economy Steal The Presents Of A Stronger 2008 IT Market?", Forrester said it expects U.S. IT investment growth to slow slightly to 4.8 percent in 2008 from 5.3 percent in 2007. Previously, the research firm had predicted U.S. IT spending growth would be about 8 percent in 2008, led by software and network equipment.

The areas hardest hit by the downturn will be computer and communications equipment and IT services, the latter being typically the first to get hit, said principal analyst Andrew Bartels. "The first things CIOs cut are consultants and contractors," he said. "They are readily delayable and cancellable items in the portfolio of spending."

Despite this outlook, there is some good news for next year's U.S. IT market. According to Bartels, the slowdown in 2008 will happen mainly from the first quarter to the third quarter, with growth in the fourth quarter of the year that will continue into 2009.

In its year-end report, Forrester defines IT investment as spending in computer equipment, communications equipment and software. It adds spending in two other segments -- IT services and outsourcing and IT staff salary and benefits -- for its definition of IT spending.

CIOs in the U.S. should plan conservative budgets because of the possibility that the economy will go into recession, Bartels said.

However, there are technologies on the horizon that CIOs should prepare to implement in 2009, so they have the difficult task in 2008 of juggling conservatism and an eye to the future, Bartels said. Those emerging technologies include unified communications infrastructure and dynamic business applications. If they can, CIOs will increase spending and investments toward the end of 2008 and in 2009 to prepare for these technologies, he said.

"It's important CIOs ... don't get so cautious they're not ready for the next wave," Bartels said.

Global IT purchases also are expected to slow slightly in 2008, from 12 percent in 2007 to 9 percent in 2008, but the U.S. market is expected to perform competitively despite the slowdown. The Asia-Pacific region, as it was in 2007, will remain an outstanding market in 2008, a year in which it may approach the U.S. in terms of size, Bartels said.

"Asia-Pacific is starting to become a factor in the market," he said. "A year from now, we'll be able to say it's a stone's throw from the size of the U.S. market, and may well pass it in 2009."

In 2007, Asia-Pacific surpassed Europe in market size in terms of IT purchases, and that measure is expected to grow in Asia-Pacific by 15 percent in 2008, according to Forrester. IT purchases in the U.S., Canada, Latin America and Europe will grow 5 percent to 7 percent next year, while in the Eastern Europe/Middle East/Africa region, purchases are expected to grow the same rate as in Asia-Pacific.

The strength of Asia-Pacific is good news for U.S. technology vendors, as they've "been able to overcome a sluggish technology economy in U.S. with the Asian market," Bartels said.