According to a new IDC study, the economic environment in which the Western European IT market operates is set to slowly but steadily improve over 2006 and 2007. With CIOs and CEOs increasingly taking a more positive attitude to IT investment, more companies are looking at value creation in their IT investments rather than cost cutting.
This shift highlights the economic recovery taking place across Western Europe and reflects the improved business confidence as manufacturing orders pick up and the service sector gains strength. Although global demand is still decelerating, European executives are bullish about the outlook in Western Europe for 2006 and 2007. Given the volatility of the global economy and the economic diversity of individual countries, IDC is cautiously optimistic about the IT economic outlook for Western Europe as a whole.
On the plus side, a number of macroeconomic indicators point to a positive outlook for the IT market. GDP growth expectations are improving, inflationary pressure has been offset by the ECB's interest rate rise, unemployment rates are falling, the stock market is bullish, and there has been an increase in corporate profits. In addition, the productivity gap between the U.S. and Europe offers IT investment opportunities as countries seek to match the targets set out in the Lisbon Agenda.
At the same time, three factors could have a negative impact on the IT market in Western Europe:
High oil prices. Given the volatility of the oil market and its importance for many economies, instability in the Middle East or Russia could have a severe impact on Western Europe, though this would have a limited effect on short-term IT spending growth.
Political instability. Western European governments have their own reform agendas, but some of these are not in tune with the European agenda. The accession and integration of new EU member states could make the EU more difficult to manage.
Passiveness. Indecision when it comes to introducing radical social, political, and budgetary reforms could prevent the EU from moving towards a more innovative economy, while other regions and countries are adapting more rapidly to the changing requirements of the global economy.
"Renewed confidence among European businesses, fueled by strong corporate profits and consumers thanks to a fall in unemployment, could lift demand for IT investment and consumption in 2006 and 2007," said Zishan Mohammad, research analyst for IDC's European Business Planning Strategies service. "The fusion of IT and business becomes more and more relevant in a complex, interactive, and highly competitive business environment. This process stimulates IT spending in hardware to support information, in software to run it, and in services to deliver it to gain competitive edge." He added that IDC expects the European IT market to continue to grow, boosted by an acceleration in economic growth in Western Europe that is more than double the GDP growth rate expected for the EU 25 over the forecast period.
"Rising political and economic uncertainty in the four largest Western European economies and high oil prices are being offset by an increased notion of the importance of IT as an enabler for growth and competitiveness," said Marcel Warmerdam, research director for IDC's European IT Markets Expertise Center. "Given the improved macroeconomic conditions, we think Western European IT market conditions are favorable for continued growth of 5% to 6% a year."
The study, Western European IT Economic Outlook, 2006–2007: The Economy Gains Momentum (Doc #ST01N, January 2006), provides in-depth analysis of global economic conditions and their impact on IT markets in Western Europe. It looks at developments in the Western European economy in 2006 and 2007 and how these will impact the economy and future IT spending. It also highlights key drivers for IT spending and the countries best positioned for IT growth.
For more information on IT investment trends for 1Q06 and 2006, see the IDC study IT Investment 2006: Budget, Plans, and Priorities in Western Europe (Doc #A01N, January 2006).
Both studies can be purchased from your local IDC office or from www.idc.com.
This shift highlights the economic recovery taking place across Western Europe and reflects the improved business confidence as manufacturing orders pick up and the service sector gains strength. Although global demand is still decelerating, European executives are bullish about the outlook in Western Europe for 2006 and 2007. Given the volatility of the global economy and the economic diversity of individual countries, IDC is cautiously optimistic about the IT economic outlook for Western Europe as a whole.
On the plus side, a number of macroeconomic indicators point to a positive outlook for the IT market. GDP growth expectations are improving, inflationary pressure has been offset by the ECB's interest rate rise, unemployment rates are falling, the stock market is bullish, and there has been an increase in corporate profits. In addition, the productivity gap between the U.S. and Europe offers IT investment opportunities as countries seek to match the targets set out in the Lisbon Agenda.
At the same time, three factors could have a negative impact on the IT market in Western Europe:
High oil prices. Given the volatility of the oil market and its importance for many economies, instability in the Middle East or Russia could have a severe impact on Western Europe, though this would have a limited effect on short-term IT spending growth.
Political instability. Western European governments have their own reform agendas, but some of these are not in tune with the European agenda. The accession and integration of new EU member states could make the EU more difficult to manage.
Passiveness. Indecision when it comes to introducing radical social, political, and budgetary reforms could prevent the EU from moving towards a more innovative economy, while other regions and countries are adapting more rapidly to the changing requirements of the global economy.
"Renewed confidence among European businesses, fueled by strong corporate profits and consumers thanks to a fall in unemployment, could lift demand for IT investment and consumption in 2006 and 2007," said Zishan Mohammad, research analyst for IDC's European Business Planning Strategies service. "The fusion of IT and business becomes more and more relevant in a complex, interactive, and highly competitive business environment. This process stimulates IT spending in hardware to support information, in software to run it, and in services to deliver it to gain competitive edge." He added that IDC expects the European IT market to continue to grow, boosted by an acceleration in economic growth in Western Europe that is more than double the GDP growth rate expected for the EU 25 over the forecast period.
"Rising political and economic uncertainty in the four largest Western European economies and high oil prices are being offset by an increased notion of the importance of IT as an enabler for growth and competitiveness," said Marcel Warmerdam, research director for IDC's European IT Markets Expertise Center. "Given the improved macroeconomic conditions, we think Western European IT market conditions are favorable for continued growth of 5% to 6% a year."
The study, Western European IT Economic Outlook, 2006–2007: The Economy Gains Momentum (Doc #ST01N, January 2006), provides in-depth analysis of global economic conditions and their impact on IT markets in Western Europe. It looks at developments in the Western European economy in 2006 and 2007 and how these will impact the economy and future IT spending. It also highlights key drivers for IT spending and the countries best positioned for IT growth.
For more information on IT investment trends for 1Q06 and 2006, see the IDC study IT Investment 2006: Budget, Plans, and Priorities in Western Europe (Doc #A01N, January 2006).
Both studies can be purchased from your local IDC office or from www.idc.com.
