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Forrester re-slashes 2009 IT spending forecast

How low can you go?

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The broomstick used for the IT limbo dance was lowered a bit more today by the analysts at Forrester Research, who once again revised their IT spending projections for 2009

Based on current economic conditions and the word that Forrester is getting from the IT departments, Forrester is now saying that global IT spending for hardware, software, and services by companies and governments will drop by 10.6 percent to $1.53 trillion. In 2008, Forrester reckons that IT spending rose by 8 per cent to just over $1.7 trillion globally, and this year was slated to be bad, but not as bad as the IT budget downdraft in the wake of the dot-com, Y2K, and ERP booms in 2001 and 2002, when IT spending fell 6 per cent in both years.

Scratch that. It is now officially worse than the dot-com bust out there, as rival IDC's server spending forecasts (see here for the global forecast and there for the EMEA forecast) amply illustrate.

The economy is apparently not recovering as fast as Forrester had been predicting. In its IT spending projection from back in January, the company calculated that global IT spending would fall by 3 per cent to $1.66 trillion. And that relatively modest decline was based on the global economy recovering in the second half of 2009. The strengthening U.S. dollar against other currencies was the main culprit in the decline in the January projection. When measured in local currencies, IT spending in the January forecast done by Forrester was expected to rise by 2.5 per cent, with all geographies seeing at least some growth.

Forrester was nonetheless pretty sanguine about 2009 when it put out its revised forecast this morning, despite the precipitous drop in IT spending that it was projecting for the year.

"While Q1 2009 saw a scary drop in purchases in the U.S. tech market, ironically that is good news for the long run and we expect to see a stronger rebound sooner," explained Andrew Bartels, the principal analyst at Forrester that puts together the forecasts and economic models. "The big drops are not precursors to further declines; rather, we think they are evidence of a temporary pause in U.S. tech purchases, which we expect to start recovering in Q4 as businesses realize that they overreacted in the first quarter. We also expect that tech markets in Europe and Asia will start to recover in the first half of 2010."

As usual, the recovery is being pushed out a bit. We can all remember this happening in 2001, 2002, and 2003. The recovery in IT spending was always just in front of us, like a runner matching our slowing pace as we chased it.

Forrester is now projecting that for the year, IT spending in the United States will drop by 5.1 per cent, a bit worse than the 3.1 per cent decline it was expecting back in its January forecast. The decline is mostly because of the big drop in spending in the first quarter and revised IT budgets as the economic meltdown took hold in earnest. The company expects for IT spending growth to resume in the States in the fourth quarter, but other markets will not recover until 2010. So even when you back out currency effects this time, there is real decline globally. But this time around, Forrester didn't mention that.

The company said it now believes that computer equipment spending will fall by 13.5 per cent to $389bn, communications equipment spending will fall by 12.4 per cent to $319bn, software spending will fall by 8.2 per cent to 357bn, and spending on consulting and other services will fall by 8.6 per cent to 456bn.

We'll see. There's a fairly good chance that this forecast will be revised again after the third quarter is done. ®

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