September 20, 2011
As readers of my blog will remember, we were all ready to publish our mid-2011 update to our global economy report (see July 28, 2011, "Forrester Will Lower Its Tech Market Forecast By One-to-Two Percentage Points, Depending On Federal Debt Ceiling Outcome") when the US deficit ceiling crisis, renewal of the European debt crisis, and other developments raised questions about the strength of the economic recovery. Given the deterioration in the economic outlook, we stopped publication to rework our forecast to reflect those changes. The delay did have a some side benefits, including getting Q2 tech market data for Canada, adjusting our US data on computer equipment, communications, and equipment for Bureau of Economic Affairs revisions, incorporating new data sources for our US projections for IT consulting and outsourcing services, and taking advantage of the better data on Australia, China, India, and Japan from Forrester's acquisition of Springboard.
With these updates now complete, we just published our new projections for 2011 and 2012 tech market growth in the US, the world, and the major regions and countries (see September 16, 2011, "Global Tech Market Outlook For 2011 And 2012: Economic And Financial Turmoil Dims 2012 Prospects"). The bottom line? Despite economic turmoil in the US and Western Europe and downward adjustments in our 2012 projections, our forecasts for 2011 and even 2012 remain relatively positive. 2011 growth will be solid, with 11.5% global growth in US dollars, and 7.5% growth on a currency-adjusted basis. 2012 will see declining, but still positive growth, with 5.5% growth in US dollars (assuming a slight strengthening of the dollar against the euro and yen) and 6.5% growth in local currency numbers. I would note that our 2011 US dollar growth rate is quite a bit higher than the 2011 forecast of 7.1% growth from earlier in the year (see January 10, 2011, "2010 To 2012 Global Tech Industry Outlook — 2011 Looks Like 2010, But With Software Leading Instead Of Hardware"), but this mainly due to changes in data inputs and a weaker-than-expected US dollar; in local currency terms, the growth rate is about the same.
Here’s the rest of the story:
- US economic weakness won’t have much impact on tech market growth until 2012. In the US, revised economic data showed real GDP growth nearly stalled in Q1 and Q2, with o.4% and 1.3% increases, respectively, while job growth, which had been decent in the first half, slowed to nothing in August. The S&P’s downgrade of its AAA rating for US treasury securities after the US debt ceiling debacle added to this downward economic pressure. Still, the first two quarters saw strong tech market growth, and the economic weakness that surfaced in July and August won’t be enough to cause any slowing in tech growth until Q4 2011. While the risk of renewed recession has certainly increased, we think that the most likely scenario is very low, but still positive economic growth. As a result, our US tech market forecasts do not currently show a significant downturn. This is with the caveat that the downside risks to our forecasts will be higher than normal due to the possibility that the US economy could slip into recession.
- Debt challenges and poor economic growth will slow tech market growth in Europe in late 2011 and 2012. The challenges facing Europe are even more intractable than those of the US. A combination of high debt burdens, low growth, and structural rigidities leave Greece and to a lesser degree Ireland, Italy, Portugal, and Spain with the potential of defaulting on their debts, which would cause major losses by banks and the European Central Bank on their holdings of these debts, triggering a financial crisis as bad as the 2008 crisis after Lehman Brothers folded. The only good news for the tech market in this dire picture is that the heavily indebted countries are relatively small parts of the European tech market, where the healthier economies of the Nordics, the UK, Germany, France, Benelux, Austria, and Switzerland are also much bigger buyers of tech goods and services. So, the economic slowdown in Europe will lead to slower growth in the European tech market, with euro-denominated growth in 2012 of 4.3% instead of our earlier forecast of 6.8%.
- All categories of tech purchase will still see double-digit growth in 2011, but mid–single-digit growth in 2012. Software and computer equipment will have the highest growth in 2011, both with 11.9% increases. In the weaker 2012 tech market, all categories will slow, with IT consulting and systems integration having relatively better growth of 6.6% as higher software investments in 2011 create a pipeline of implementation projects that carry into next year. Communications equipment will round out the bottom of spending in 2012, with just a 4.7% increase.
- Emerging economies lead tech market growth in 2011 and 2012.In 2011, Latin America and Eastern Europe, Middle East, and Africa (EEMEA) will see very strong double-digit growth. EEMEA will reap the benefits of high oil and natural resource prices in both 2011 and 2012, while Latin America sees a continued, but slowing, economic boom from strong demand for its natural resources and manufacturing exports. In dollar terms, Canada, Western and Central Europe, and Asia Pacific will grow faster than the total global market due to the weakness of the US dollar against the Canadian dollar, the euro, and most Asian currencies. Measured in local currencies, the Asia Pacific market will see lower growth rates than the global market in 2011 but slightly better in 2012, as disaster-related declines in Japan in 2011 are followed by recovery-related growth in 2012. In 2012, growth rates will decline, but rankings will remain similar, with Latin American and EEMEA as the only regions seeing double-digit growth. Western and Central Europe is the exception, with a steep fall to the bottom, with just 2% growth in 2012.