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Economic woes could cost IT sector £100bn

IDC has calculated that a European economic downturn would be very bad news for the IT market
Written by Graeme Wearden, Contributor

A decline in economic growth across the world could wipe over £100bn off spending in the IT sector over the next three years, according to latest figures.

Research group IDC warned on Monday that poor economic conditions would have a severe effect on spending on new technology. In particular, IDC is concerned that there could be a more severe downturn in Western Europe.

The company said that a worst-case scenario projection could be a global slowdown that would "reduce worldwide IT spending between 2001 and 2003 by as much as $150bn (£106bn), with $50bn (£35.4bn) less demand from Europe". IDC's "worst-case scenario" would mean that IT spending in Europe rose by only 7.9 percent in 2001. The research group actually expects to see growth of around 11 percent this year -- more optimistic than some experts predict.

"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. Minton warned that hardware sales would be most badly hit if economic conditions were worse than expected.

Although the US slowdown is not thought to have spread to Europe yet, the UK have already suffered because of it. American companies such as Compaq and Motorola have announced the closure of factories in Scotland, while a substantial drop in demand for mobile phones could mean the shutdown of two British-based Ericsson manufacturing plants.

While many tech firms claim publicly that economic conditions will soon improve, many experts are less confident. Last month's Holway Report claimed that the demand for IT products would remain modest until at least 2004. Richard Holway, director of Ovum -- the analyst firm that publishes the Holway Report -- claimed that IT spending would stay low because there was no exciting new technology that would boost demand on the horizon.

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