Forrester foresees weak IT market growth for 2012

But Eastern Europe, the Middle East, Africa and Latin America to grow at 12%

According to its latest report Global Tech Market Outlook for 2011 & 2012, Forrester Research predicted that global tech purchases will be US$2 trillion in 2011 growing at 11.5 per cent in 2011, but the growth rate will slowdown to 5.5 per cent in 2012. This, according to Forrester, will be primarily because of the slowest growth in IT markets of Western and Central Europe at around 3.8 per cent in 2012 against 6 per cent in 2010.

Eastern Europe, the Middle East, Africa and Latin American markets, however, will grow at the highest rate of 12 per cent. The US market at $802 billion, the largest in the world, will also grow slower at 6.4 per cent in 2012. Said Forrester Research Vice President and Principal Analyst Andrew Bartels, “The global tech market will grow moderately despite global economic worries casting shadows on the outlook.”

This is certainly bad news for the Indian IT industry as nearly 90 per cent of its $70 billion revenue comes from software exports to the US and European markets. The industry body Nasscom, however, is not alarmed as its President Som Mittal said on Thursday that the industry is yet to see any signal of IT budget cut by large clients. “So far no one has reported any contraction in IT spending. But if the Euro zone crumbles, the whole world will be in trouble, including the IT industry here” Mittal said.

The US and European economies are dancing on the edge of a recession but haven’t yet fallen. As a result, the outlook for the global market for business and government purchases of technology goods and services will see slowing, though still positive growth, in 2012. Forrester said the growth in 2011 would be better, because vendors have had two quarters of generally strong demand before economic weakness surfaced in July and August, and that weakness won’t lead to slower tech market growth until Q4 2011. For 2011, these conditions plus a weaker US dollar mean that global IT market growth will be 11.5 per cent but the currency-adjusted growth rate would be 7.7 per cent.

The US economy is barely growing as the US Department of Commerce released revised data on US gross domestic product, which showed that US real GDP had risen by only 0.4 per cent in Q1 2011. Similarly, feeble response to European debt problems and too much austerity has hurt European growth. In Europe, real GDP growth of 3.4 per cent Q1 2011 turned into second quarter growth of 0.8 per cent. The only positive economic news has come from the emerging markets of Latin America; Eastern Europe; the Middle East and Africa; and Asia Pacific.

These economies have continued to post strong growth, providing a lift to exports from the US and Europe and keeping those economies from slipping into recession. “However, inflation has been on the rise in Brazil, Russia, India, and China (BRIC), raising the risk that their central banks’ tightening of monetary policy to tame inflation may overshoot, causing growth in these markets to drop,” the report said.

Among the IT market, spending on software (market size about $509 billion in 2011) will grow at 6.2 per cent in 2012 against 2011 growth of 8.1 per cent, Forrester said. Among the other segments of the market, IT Outsourcing (size Rs $ 352 billion), IT consulting and systems integration ($ 405 billion) and computer equipments ($ 416 billion) is expected to grow at 6.3 per cent, 7.6 per cent and 6.6 per cent, in 2012.