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The economic slowdown in China has driven International Data Corporation (IDC) to lower its expectations for worldwide IT spending growth this year.
The IDC Worldwide Black Book Query Tool now forecasts IT spending growth of 4,6% in constant currency for 2013, down from the previous forecast of 4,9% growth and a sharp deceleration from last year’s growth of almost 6%.

Despite the lower forecast, IDC expects IT spending will reach $2-trillion for the first time ever in 2013. Meanwhile, total ICT spending, including telecommunications services, will increase by 3,8% at constant currency to $3,6-trillion.

Capital spending in China and other emerging markets shows signs of weakening from the rapid pace of expansion recorded since 2010. Meanwhile, PC sales face continued pressure from lower-cost tablets in the first half of 2013 and the rapid adoption of cloud services is cannibalising revenue from traditional sales of software and IT services.

In the US, shipments of smartphones and tablets have buoyed the overall market so far this year, but forecasts have been lowered for other hardware market sectors and IT services. Expectations have also been scaled back in Canada, Western Europe, Brazil, and Central and Eastern Europe, Middle East and Africa (CEMA) as well as in Asia/Pacific (excluding Japan).

“With the economic outlook uncertain for the second half of this year, we remain focused on the downside risks associated with China and Western Europe,” says Stephen Minto, VP in IDC’s Global Technology & Industry Research Organization (GTIRO).

“IT spending in Europe remains tepid by any historical standards, with overall growth of 2% driven entirely by mobile devices. Excluding phones and tablets, IT spending in Western Europe will in fact decline by 0,4% this year.”

The forecast reduction would have been starker if not for strong sales of smartphones and tablets in the first half of the year. More than half of this year’s IT market growth will come from mobile devices; excluding phones and tablets, IT spending will increase by just 1,7% in constant currency (down from the previous forecast of 2,6% growth).

Worldwide spending on smartphones is now expected to increase by 18,5% in constant currency this year (up from the previous forecast of 17,2%), while tablet spending will increase by 39% (up from the previous forecast of 32,5%).

The PC market, in particular, performed poorly in the first half of 2013 as cannibalisation from tablets continues. The economic slowdown in China, reverberating throughout Asia/Pacific, also took a bite from PC revenues; worldwide PC spending is now expected to decline by 7,2% in 2013, down from the previous forecast of a 2,6% decline.

Only the US bucked this trend somewhat, with PC sales a little stronger than expected in the second quarter, but not enough to offset the overall decline in shipments and average prices.

Growth continues to decline in other hardware sectors, with worldwide server spending now expected to decline by 3,5 % in 2013 while storage hardware revenues will increase by just 1,9% (down from 6,5% growth in 2012, and down from the previous forecast of 2,4%).

“Average price declines in the server and storage markets continue to pressure margins and revenues, while some of the pent-up demand which drove the 2010-2012 rebound has given way to a more subdued environment for capital spending,” says Minton. “There are still pockets of growth, but overall hardware investments are in a cooling phase, which will last until 2014 at the earliest.”

IT services expectations have been impacted by economic weakness in some regions and continuing cannibalisation from cloud services. IDC has lowered the forecast for US IT services growth in 2013 from 3,7% to 2,9%, and worldwide services growth is now expected to be 3,4%, (down from the previous forecast of 3,8% in constant currency).

Software spending (including software as a service or SaaS) has so far remained relatively resilient overall, with growth in constant currency of 5,5% still expected this year. By the end of 2013, almost 10% of annual software spending will have moved to the cloud.

“Enterprises are still investing in new software tools and solutions, especially where rapid cost-benefits have been identified, but more software sales are migrating to SaaS and PaaS delivery models,” continues Minton.

“Not only does this put pressure on software vendors to compete with lower-margin cloud software providers, but the growth of cloud is also cannibalising revenues from IT outsourcing and application hosting.”

The slowdown in the Chinese economy was a drag on IT spending in the first half of this year. IDC now forecasts overall IT spending growth of 9,5% in China this year (in constant currency), still slightly outpacing GDP but down from the previous forecast of 12,9% growth and a sharp deceleration from the pace of the past four years.

Meanwhile, the upturn in Japanese stock market confidence, driven by the new government’s deflation-busting policies, has yet to materialise in a major upturn in IT spending.

IDC now expects overall IT spending in Japan to decline by almost 1% this year in constant currency, after the post-earthquake stimulus recovery, which drove growth of almost 5% last year. For the overall Asia Pacific region, IT spending is now expected to increase by just 4,8% in constant currency this year, down from the previous forecast of 6,3%.