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IDC sees 2009 European IT slowdown

Global sluggishness

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Only a few weeks ago, we told you how the analysts at IDC had trimmed their forecasts for global IT spending. Well, now IDC is providing a little more detail about the IT spending situation across the Europe, Middle East, and Africa region, and the news is not exactly good.

Blame the economic meltdown, which started off with the United States and its careless lending and securitization of mortgages.

IDC is now projecting that IT spending across the EMEA region will only grow by 3 per cent in 2009, which is 1.5 per cent lower than projections made by the company's analysts before the meltdown started in September.

The impact of the financial meltdown on 2008 and 2009 spending reflects differences in the regional economies across the EMEA region. For 2008, IDC is expecting that Western Europe, with the largest but most sluggish economies, will see 4 per cent growth in IT spending in 2008, and IDC said before the meltdown, Western Europe would be able to manage 4 per cent IT spending growth in 2009. Now, Western Europe will be lucky to see 1.2 per cent growth, according to IDC.

"The IT market in Western Europe has moved into a phase of very sluggish growth for the foreseeable future," explains Marcel Warmerdam, research director for European IT markets at IDC. "Many IT users are already resetting priorities in view of tougher times, with many projects being postponed or canceled."

The Central and Eastern European (CEE) part of EMEA has been growing faster for many years (thanks in large part to Russia, which has seen a resurgence in its economy thanks to booming oil production and high oil prices). IDC reckons that CEE will see 13 per cent IT spending growth in 2008 and had been forecasting that in 2009, growth would continue to accelerate, with an aggregate 16 per cent IT budget growth across the companies in the region.

But alas, in the wake of the economic meltdown in September, IDC is now saying that CEE would see maybe 9.4 per cent IT spending growth in 2009, a decline of nearly four per cent in the growth rates. Some of that has to do with diminished oil prices, which is hurting the local economy in Russia, but also because the manufacturers in Central Europe are being pinched as all regions of the global economy see citizens cut back on spending, forcing declines in GDP.

In the Middle East and Africa, which are arguably not a large part of the IT sector but are nonetheless a growth area thanks to South Africa, Israel and the oil rich nations in the area that buy lots of computers to do their computational seismology, growth is also expected to slow in the coming year. For 2008, IDC is projecting 14 per cent IT spending budget increases across all companies and governments in the region for 2008 and was expecting 12 per cent growth in the coming year before the meltdown. But now, post-meltdown, IDC now says that 8.5 per cent growth is more likely for 2009.

"While growth in the IT markets of CEE and MEA regions will slow in 2009, affected by downturns in Russia, Turkey, and South Africa, we anticipate a sharp recovery already in 2010 in view of requirements for infrastructure development," says Steven Frantzen, senior vice president for EMEA research at IDC. So while these markets have slowed, they could turn out to be resilient if the economies of the world stabilize and rebound a bit.

When you add it all up, EMEA is going to get six per cent IT spending growth in 2008, was on deck to get six per cent in 2009, but is now expected to see maybe three per cent growth. Western Europe is the largest part of the EMEA market, and with many countries in the region technically in recession (most significantly, Germany is in recession according to the country's economists), GDP is going negative and taking IT spending growth with it. "We are likely to see a major shift in the type of IT spending as users increasingly focus on cost reduction and gaining efficiencies," said Warmerdam, talking about EMEA as a whole. "In fact, despite the troublesome short-term picture, there are a few silver linings."

Specifically, this will include continuing investment in IP phones and smart handhelds, with double-digit growth rates. IDC is also expecting for open source software to get a boost as a way to cut budgets, and software as a service might get more play than expected too, among budget-conscious IT shops in the EMEA region. As companies hit economic walls, they will turn to outsourcing to cut costs, as they have done for decades, and there will be more financial and credit regulation, which itself will boost IT spending. ®

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