Forrester slashes IT spending forecast as recession deepens

The economic downturn has led to a sharp reduction in forecasts of IT spending. Forrester Research, after predicting 6.1% growth in U.S. purchases of IT goods and services as recently as August, now says that spending growth in 2009 will be just 1.6%.

"The question for the US tech market is no longer whether the U.S. economy is in recession -- instead, it is how long and deep the recession will be and how much damage will it do to the tech sector," Forrester analyst Andrew Bartels writes in a market outlook report released Tuesday.

IT spending grew 4.1% in 2008, but purchases are sharply slowing. U.S. revenues of large IT vendors dropped 2% in the third quarter, Bartels states.

"Computer equipment purchases are already in decline," he writes. "Growth is slowing for purchases of network equipment, software purchases, and IT consulting and outsourcing services. Continued declines in purchase are in prospect for computer equipment purchases in Q4 2008 and the first half of 2009, with little or no growth in communications equipment and IT services. Software growth will drop to as little as 2% in coming quarters."

Forrester says it remains relatively optimistic, predicting that after periods of slowing growth IT purchases will start to revive in late 2009 and will grow by 8% in 2010. Forrester does not expect anything like the 15% to 20% declines seen after the dot-com bubble burst.

In February, Forrester predicted 2009 spending growth of 10% but has revised that prediction downward three times, culminating in the latest forecast of 1.6% growth. Forrester's predictions of a recovery in the second half of 2009 are pinned on expectations that a large economic stimulus package will be forthcoming from President-elect Barack Obama's incoming administration and the Democratic-controlled Congress.

"This surge in federal government spending will benefit the construction industry, the healthcare and education industries, and state and local governments," Bartels writes. "The federal government and public services industries of healthcare and education were already going to be among the better buyers of IT goods and services, but this stimulus package will solidify that status. As the program kicks in, state and local governments and the construction industry will step up their IT buying in late 2009."