Forrester: Recession to Slow Down 2009 US IT Spending

By Jessica Davis  |  Print this article Print

Forrester Research has revised downward its forecast for IT spending growth in 2009 in the wake of new data about the depth of the recession. But analyst firm Forrester is predicting a weak recovery in the second half of 2009.

IT spending will be significantly lower than previously expected in 2009, but is still expected to grow, according to Forrester Research, which issued its U.S. IT spending forecast report today.

Forrester Research is now projecting IT spending to grow by 1.6 percent in 2009, down from the analyst firm's previous projection of 6.1 percent that was issued before "more recent data illustrating the depth and breadth of the recession."

Forrester notes that the U.S. technology market already showed weakness in the third quarter with declining computer equipment purchases as well as slowing growth for purchases of network equipment, software, and IT consulting and outsourcing services.

But even though the economy is in recession and technology spending is anemic, Forrester believes that 2009 will not be nearly as bad as the technology downturn of 2001 and 2002 – good news for anyone who weathered that storm.

"The question for the U.S. 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 it will do to the tech sector," writes Andrew Bartels, author of the report. "Forrester is still a relative optimist, believing the recession will last into mid-2009, with declines in real GDP as much as 3.6 percent on a quarterly basis. … We do not expect to see the 15 percent to 20 percent declines in tech purchases that happened in the 2001 to 2002 tech downturn."

Forrester Research's technology market forecast now assumes that the decline in U.S. real gross domestic product in the third quarter of 2008 will accelerate in the fourth quarter and the first half of 2009 before a weak recovery starts in the second half.

The analyst firm believes that prices will fall in the fourth quarter 2008 and in the first quarter 2009 due to the sharp drop in oil and commodities, which in turn will cause declines in nominal or inflation-adjusted GDP during those quarters.

Because of this, Forrester expects sharply slower growth – 3.4 percent in Q4 2008 and 0.5 percent in Q1 2009 – in investment in computer equipment, communications equipment and software.

"However, the IT market will improve at the end of 2009, and the subsequent 2010 recovery will be broadly based, benefiting all sectors of the tech market," Bartels writes. Forrester is forecasting 8 percent growth in 2010.

Forrester broke out the following categories:
  • Computer equipment – Forrester forecasts computer equipment sales will continue to fall in 2009 with growth weakest for servers and personal computers. Storage and industry-specific hardware products, such as smart utility meters, will enjoy immunity from this trend.
  • Communications equipment – Growth will slow for this category, too, as buyers delay purchase decisions.
  • Software – Once immune to downturns, software sales will slow in 2009, too. License revenues will likely be flat or even decline, according to Forrester, but will recover in 2010.
  • IT consulting and systems integration services – Forrester says these services "will hit the wall in 2009." Demand already dropped in Q3 and will continue to weaken in Q4, says Forrester. Full-year growth for 2008 will be 4.1 percent, and the forecast for 2009 is 2.2 percent growth.
  • IT outsourcing – Growth will remain moderate in 2009 and 2010.
The Forrester Research report is based on analysis of data from the U.S. Department of Commerce and the financial reports of 49 IT vendors.

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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