Global IT Budgets 2012 – IT Research & Advisory Firms View on IT Spending

Causes for IT spending decline

European debt crisis which intensified in early 2010 is still continuing to affect the Global economy in 2011 and is expected to continue into 2012. Euro zone countries and IMF agreed on a €110 billion loan for Greece in May 2010, with a condition of implementing strong austerity measures by the Greek government. After Greece, a €85 billion rescue package for Ireland in November and a €78 billion bail-out for Portugal in May 2011 were announced, as an effort to tackle the crisis. Recently in October, Euro zone leaders agreed on a package that included a proposal to write off 50% of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion and requiring European banks to achieve 9% capitalization.

US economy is slowing down with rising unemployment levels, shrinking corporate profits and widening trade deficit. President Obama announced US$447 billion jobs package that's intended to spur business hiring and consumer spending in an economy that has sputtered almost to a halt. The package includes spending US$140 billion to save the jobs of state and local teachers and first responders, repair deteriorating schools and rebuild roads, railways and airports. Also includes 50% reduction in the payroll tax which will cost US$240 billion. Critics question whether the package will stop slowdown and kick start growth. These two factors have a significant impact on the overall IT spending/IT Budgets by the businesses on which the IT/BPO Industry depends for the revenues.

IT spending view by IT Research Firms

According to Gartner, Inc, worldwide enterprise IT spending is projected to total $2.7 trillion in 2012, a 3.9 percent increase from 2011 spending of $2.6 trillion and enterprise IT spending growth is slowing from the expected 5.9 percent increase in 2011. According to Forrester, IT spending will grow about 5.5% to US$ 2.15 billion in 2012, compared with around 11.5% to US$2.04 billion in 2011.  According to IDC, worsening macro economic indicators are cause for concern about IT spending in 2012. Western Europe IT spending has softened, US market volatility in enterprise hardware and weakening PC sales, but software spending was strong and Emerging markets (BRIC) are still strong and driving overall industry growth.

According to Nucleus research survey of US companies found 50 percent plan at least some increase in IT spending in 2012. This confirms that while companies may continue to limit new hires and other investments, they still see IT as a means to drive greater efficiency and profitability. According to Society of Information Management (SIM) survey, 85% of IT executives are predicting that their 2012 IT budgets will be greater than or equal to their 2011 figures. Only 65% of respondents made this prediction in 2009. IT budgets, salaries and staff turnover rates have returned to pre-recessionary levels.

Slowdown in IT spend

Overall IT spending will slow down in 2012. With no end to be seen for European Debt crisis and question being raised on President Obama stimulus package’s effectiveness in kick starting US economic growth from current slow down levels. Business and governments are skeptical about the IT spends as of now but there is a positive upward bias in terms of IT spending growth all but at a slow pace compared to 2011. With overall revenue growth slowing business may not spend much on IT but will be looking at IT as a way of improving the efficiency and reducing costs. IT spend will definitely help the businesses and governments to overcome the slowing the revenue growth and increase profits through cutting costs using IT. Emerging economies particularly BRIC countries will be driving the overall IT spend growth compared to US and European countries. European countries are definitely going to see reduced IT spend due to the debt crisis.

  

Discussion points:

1. What will be the affect of European debt crisis and US economic slowdown on IT Spending?
2. When will IT spending recover to the normal levels?
3. What should IT/BPO vendors do to overcome slowdown in IT spending?