How bad can it get?

Any further weakening in the European economy could have a major impact on the demand for IT products and services over the next three years, according to a new report from IDC.

With new economic data pointing to the possibility of a more severe downturn in Western Europe, the likelihood of the US. technology slowdown spreading to Europe is increasing. This global slowdown could reduce worldwide IT spending between 2001 and 2003 by as much as $150 billion, based on a ‘worst-case scenario’ projection, with $50 billion less demand from Europe.

Based partly on economic forecasts in the first half of 2001, IDC expected the European IT market to show double-digit growth throughout this year. A slight slowdown in economic growth across the region was not expected to have a significant impact on IT spending because of regional market dynamics. However, spending in some segments of the European IT hardware has clearly tempered, including weaker demand from service providers for networking equipment and a slowing growth rate for PC sales.

‘Software and services are still expected to show strong growth this year,’ said Stephen Minton, manager of IDC’s Global IT Economic Outlook research program and the European IT Markets Center. ‘Similar to the story in North America, we expect that any economic slowdown would have its most severe impact on hardware demand. Historically, hardware spending is highly vulnerable to swings in the overall economy.’

Currently, IDC forecasts 11% growth for IT spending in Western Europe this year. At the bottom end of the economic predictions, a worst-case scenario for Europe would see total IT spending grow only 7.9%. Moreover, this slowdown would likely continue into 2002 and potentially into 2003 as the European economy struggles to maintain growth while controlling inflation. Most at-risk countries include Germany and Italy, with the United Kingdom expected to be more stable.

‘For European suppliers, the importance of understanding the broad economic picture has never been more important. Events in the United States have dispelled the myth that technology spending is immune to an economic slowdown,’ Minton said.

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