Growth in IT spending falls as larger firms tighten their belts

Growth in IT spending fell at the end of last year, reaching its lowest point in two and a half years, as large businesses reined in their spending.

Growth in IT spending fell at the end of last year, reaching its lowest point in two and a half years, as large businesses reined in their spending.

The latest Kew/Computer Weekly survey shows that growth in IT spending fell from 5.2% in the third quarter of 2005, to 3.9% in the last quarter, its lowest level since mid 2003.

The downturn has been driven by larger firms squeezing their IT budgets to help raise their profits, Kew Associates said.
 
“If you look at the economy generally, investment is not very healthy. It is not marching in step with economic growth. This could be because of concerns about pension deficits and energy prices,” said Kris Wika, director of Kew Associates.

The survey shows that growth in IT spending by the services sector fell from 5.1% in the third quarter of 2005 to 3.7% in the last quarter. Production industries saw spending fall from 5.5% to 4% in the same period.

Growth in public sector spending on IT outside the health service has also fallen, from 5.4% to 4.3% between the third and fourth quarters of 2005, as government organisations feel the impact of the Gershon efficiency savings.

Growth in IT spending by small and medium sized firms, however, has remained constant at 6.1%, as smaller businesses try to close the technology gap with larger firms.

The survey shows, in a marked departure from previous trends, that companies have been able to improve their profits without increasing  their IT spending, easing pressure on boards to invest in technology.

But companies may be seeing only a temporary respite, as they reap the benefits of increased government spending.

Read more on IT governance

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