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Forrester Slashes IT Spending Forecast

Forrester Research has drastically lowered its U.S. IT spending forecast for this year, because of the deepening economic recession.

Tech spending by U.S. businesses and government would fall by 3.1% in 2009 from last year, Forrester said in a report released Tuesday. The analyst firm had previously forecast a 1.6% increase in spending.

"The U.S. recession keeps getting worse than we and many economists had expected," Forrester analyst and report author Andrew H. Bartels said.

Instead of the 2% to 3% drop in gross domestic product the United States experienced in the 1990s and 2001-2002 recession, the nation's GDP fell more than 6% in the fourth quarter of 2008 and is expected to drop a similar amount in the first quarter of this year, Forrester said. Computer equipment purchases would bear the brunt of cutbacks in tech spending, but decreases also were expected in network equipment, software licenses, and consulting services.

However, the U.S. economy is expected to start recovering late this year, and IT spending should show strong growth next year, the research firm said.

While many research firms last year had pegged forecasts on what was expected to be a mild recession, the deepening economic downturn worldwide has forced analysts to make major adjustments to predictions. Forrester's latest projection marked the fourth consecutive quarter the research firm lowered its 2009 forecast.

Gartner, which as of February expected an increase in global IT spending of 0.5%, lowered its forecast on Tuesday to a decline of 3.8%. Last October, Gartner said its "worst-case scenario" called for a 2.3% increase in IT spending for 2009.

Forrester said the biggest impact on the tech market has been the breakdown of the financial system caused by the collapse of the U.S. real estate market. Because of the banking crisis, companies of all sizes have either been unable to obtain loans for purchases or have been offered much higher interest rates. As a result, businesses have gone into a "cash-hoarding mode," with major cutbacks in all forms of capital spending.

Spending cuts this year for IT will be broad-based, affecting computers and peripheral equipment, communications equipment, software, consulting services, and outsourcing, Forrester said. Next year, the picture is much brighter. Forrester expects spending increases in 2010 in all the segments, which will result in an overall increase of 6.6%.

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