Technology sector will suffer as European economy slows

Europe's economic slowdown will blunt demand for technology goods and services, and could wipe $9 billion (#10.64 billion) off the value of the European IT market this year, and $50 billion by 2003.

Economic indicators clearly show that the US downturn has had a harsher effect on Europe than had been predicted and even "a very slight weakening" of the European economy could result in a $50 billion cumulative loss, according to a new report from International Data Corporation, a Massachusetts-based technology analyst.

"The impact on the global picture is equally profound," warns the report. "If taken in tandem with the US slowdown, a weakening of the European economy has the potential to wipe $150 billion from the value of the worldwide IT market over the next three years."

While the economic decline in Europe has not been as severe as in the US, the slowdown has quashed hopes among information technology companies that strong sales in Europe could make up for the US shortfall. Instead, Europe's weakness has forced many American IT companies into issuing profit warnings in the past two quarters.

Following the US pattern, the slowdown has been felt particularly among hardware vendors in Europe, with computer manufacturers among the earliest and hardest affected, notes the report. IDC analyst and report author Mr Stephen Minton said software and services are still expected to show strong growth this year, but hardware will suffer.

The report imagines two different scenarios, depending on the severity of the slump. In the report's "worst case scenario", where GDP across Europe falls to 1.5 per cent in 2001, IT market growth would drop to 7.9 per cent and losses would build to $50 billion by 2003. Current predictions are that GDP will fall to 2.5 per cent, which would pull growth in the IT sector down to 11 per cent from more than double that amount in previous years. This forms IDC's "consensus scenario".

The countries most at risk are Germany and Italy, with Britain expected to be more stable, according to the report.

The dot-com boom was less pronounced in Europe and therefore the crash will be less severe and many of the world's leading technology suppliers now view Europe as their most strategic market.