IT spending caught in a vicious circle

The US economy has been engulfed in a vicious circle that was sparked by the dot com crash last year, research by IDC has found.

The US economy has been engulfed in a vicious circle that was sparked by the dot com crash last year, research by IDC has found.


A report by the market researcher claimed the situation had caused the economy and technology spending to stumble. But it also predicted things would begin to improve as the year went on and that IT spending would increase in 2002.

"The tumbling Nasdaq triggered a vicious circle in which lower stock values dampened IT spending and contributed to a broader economic downturn, which in turn put further pressure on technology spending and share prices," said senior analyst Kevin White.

The report predicted US IT spending growth would fall to seven per cent in 2001, from 11 per cent last year. Hardware is expected to bear the brunt of the fall, with the possibility that spending growth could drop from 9.6 per cent last year to as little as one per cent this year.

"Evidence suggests that software and services are more resistant to the downturn in the economy than hardware," White revealed. He suggested hardware might be more vulnerable because of the cyclical nature of business investment and consumer spending on consumables.

"But the fundamentals underpinning IT investment remain strong and this factor, along with a rebound in the economy, will restore IT spending in 2002 and beyond," he added.

The main factors contributing to the optimism were e-commerce and increasing Internet usage. "The expansion of their use will benefit not only Internet companies and retailers, but also the hardware and software vendors whose products power the Internet," White claimed.

"Most businesses realise that technology can improve productivity and will continue to look at the available kit and make the investment," he added.

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