Richard Gordon

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Richard Gordon
Research VP
14 years at Gartner
23 years IT industry

Richard Gordon is a research vice president in Gartner Research. He has worldwide responsibility for Gartner's Global IT Market Forecasting. Read Full Bio

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Financial Market Turmoil Doesn’t Mean Dramatic Cuts in IT Spending …

by Richard Gordon  |  October 14, 2011  |  Comments Off

… at least, not yet.

We have just released the 3Q11 update to Gartner’s Global IT Spending forecast.

This update has been developed against a backdrop of extreme global stock market volatility over the past few weeks, which was prompted by escalating concerns about sovereign debt levels and gloomy economic growth forecasts.

There are increasing concerns about a “double dip” recession, led by Europe and the problems in the Eurozone but pulling in the US as well, with a knock-on effect on growth in the export-driven emerging markets such as China. There is a worry that falling demand for goods and services around the world could impact the outlook for IT Spending.

So, in this uncertain economic environment, are we dramatically downgrading our forecast for IT Spending growth? The short answer is no.

While the causes of the current downgrades to the economic growth outlook are no doubt a hangover from the Global Financial Crisis of 2008 and the subsequent recession, it is important to note that this is NOT 2008!

Today, in 2011, the extent of the sovereign debt problems are understood and quantified even if the politicians are struggling with developing and executing a plan to fix them.

From an Enterprise perspective, company balance sheets are in good shape with many companies are sitting on cash piles. Businesses have remained in cautious budget mode since 2008 so there is less room for cuts now. In fact, CFOs are still expecting to increase technology spending by ~5% for the coming 12 months as technology products and services remain compelling both for cost optimisation and to enable growth strategies. Added to that, commodity prices are declining, bringing costs down and emerging economies are still growing strongly.

However, consumer confidence remains weak (especially in the mature economies of Western Europe and the USA) because of stubbornly high unemployment, a stagnant housing market and barrage of negative media coverage about an impending global economic meltdown – no wonder consumers are cautious about discretionary spending!

So to the updated numbers …

Gartner’s forecast for dollar-valued global IT spending growth has been revised up from 7.1% to 7.6% for 2011 but down 5.0% to 4.6% for 2012. Currency fluctuations again have a significant impact on the top-line current U.S. dollar growth forecast for this year and next; in constant dollar terms, the spending growth forecast across all high-level technology sectors has been trimmed so that, at the level of overall IT, underlying growth has been revised down from 3.6% to 2.9% for 2011 and from 5.0% to 3.9% for 2012. The key driver of this trend is a slowdown in the short term outlook for spending on PCs and Cell Phones especially by consumers.

The bottom line is that, despite the worrying economic situation, we do not expect to see dramatic cuts to enterprise IT budgets in 2011 and 2012. Increased budget scrutiny and conservative business plans are a given in this uncertain macroeconomic climate but IT investment is critical for ongoing business success and non-essential, discretionary spending has, in many cases, already been reduced to a minimum following the Global Financial Crisis of 2008 – 2009. Consumers remain skittish but have proved reluctant to give up completely spending on technology products and services so, while there will no doubt be weakness in demand in the coming quarters, again, we are not expecting to see a severe downturn in consumer discretionary spending.

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