According to IDC, the first quarter of 2008 until now has seen IT spending in par with prior expectations, confirming a deceleration in some areas of demand in the US. The stagnant economy is still expected to drive overall IT spending growth down to around 4% in the US this year, compared to last year's growth of 6%.
International demands particularly in relation to favorable currency trends which have buoyed the reported earnings of US-based vendors. In Europe and Asia some tentative signs of weakening demand and indicators have already surfaced. Worldwide IT spending is expected to increase by 5.7% this year on a constant currency basis, down from last year's 7.2%.
The first quarter results have not disrupted IDC's prior view on U.S. IT spending this year, with signs of softening demand in the PC market confirming that a broad-based but so far contained slowdown is in effect.
IDC reaffirms its view which calls for hardware market growth in the U.S. of less than 2%, while software spending will increase by 7% and IT services by 5%. According to IDC, the strongest growth continues to come from back-end software, network equipment, and mobile devices. However, downside risks relating to macroeconomic weakness in the U.S. are expected to persist throughout the remainder of 2008.
"In a downside scenario, we could be at the beginning of a classic IT spending slowdown," said Stephen Minton, vice president (Worldwide IT Markets) of IDC.
According to Minton, in every previous IT recession, the first sign of weakness has shown up in a softening of PC shipments. This has then transmitted to other hardware sectors within one quarter, to software license sales within half a year, and to the IT services sector if the recession persists for more than three quarters. Hence, it's important to closely monitor all other sectors of the IT and telecom industries for indicators of a further round of spending cuts. While this downturn will not resemble 2001 in terms of scale, it could yet be similar in terms of timing.
The impact of the U.S. slowdown, has affected international markets to varying degrees. IDC has lowered its forecast for Western Europe to 4.1% growth in IT spending this year, and for Asia Pacific to 5.4%. Manufacturing exporters and financial services firms are likely to be the hardest hit, and this will be reflected in adjustments to their short-term IT investment plans.
In Russia and the Middle East, however, booming growth has continued and IT spending is expected to continue its double-digit rate of expansion this year.
"The global economy is still faced with a variety of risk factors," said Anna Toncheva, economist of IDC.
According to Toncheva, intensifying financial instability, inflation pressures, and global imbalances have lead to increased synchronization of the business cycles between the U.S. and the rest of the world over the first quarter of 2008. When business cycles are closely tied together, macroeconomic shocks tend to spread faster from one area to another. And though the current housing and financial crisis in the US seems comparable only to the mildest cases in world history, the compression on global economic activity will probably linger over the course of the next 6-7 quarters and will inevitably discourage investment plans.
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