Industry Observatory Update

by Dan Roberts

G8 Application Software spending to recover in 2010

The Cambashi Industry Observatory tracks IT spending in about 50 countries across 100 industry sectors, with forecasts to 2012.  One of the key outputs is Application Software spending by industry sector.  These predictions come from econometric modelling, based on forecasts for value-added by industry sector from IHS Global Insight.

In 2009, Canada seems to have been the worst-hit of the G8 in the recession with spending down 19%.  In 2010, forecasts suggest that Application Software spending will increase in all of the G8, except for Italy.

When we compare the G8 to China, we see that China’s spending on Application Software is expected to have exceeded that of three G8 countries in 2009 – Canada, Italy and Russia.  China’s percentage growth is forecast to outstrip even other emerging economies like Russia (see Chart 1).

Chart 1: Growth in Application Software spending in China, Russia and the whole G8

However, in absolute terms the application spending growth of $2.2BN in the US is expected to far exceed that of China and any of the other G8 countries (see Chart 2).  However, much of the US growth merely claws back the $2BN decline seen in 2009.  China’s absolute application spending growth will decline from $600M in 2009 to $300M in 2010.  Recent surveys suggest that worldwide IT budgets are increasing, but if the economy does suffer a double-dip recession, then this spending could be put back on hold.  If there is a double-dip recession, then China is likely to be a better bet for continued growth than the US.

Chart 2: Forecast increase in Application Software spending in China and the G8 ($M)

In Manufacturing, 2009 was a tough year for Application Software vendors, with only Russia of the G8 marginally increasing its spending.  Even in countries that were growing, their growths were much reduced compared to spending in 2008: Russia dropping from 13% to 2%.  By comparison, China’s growth dropped from 39% to 27%.

Manufacturing is expected to recover in most G8 countries during 2010.  Only Italy and the UK are forecast to reduce Application Software spending.  According to the latest forecasts, the Manufacturing sector in both Italy and the UK is expected to shrink again in 2011.

The Automotive sector is one of the largest manufacturing sectors and various scrappage schemes had a big impact on 2009 output.  Germany is the largest market for Application Software spending in the Automotive sector.  The US is forecast to grow faster than China in Automotive Application Software spending in both 2010 and 2011 (US 20% and 17%, China 14% and 12%).  This is a major turnaround compared to 2009.  China is expected to have increased spending in the Automotive sector by 78% during 2009, while the US is expected to have reduced spending by 8%.

Provided governmental policies continue to support the economy, it is clear that current data suggests that Application Software vendors will have a much better year in 2010 than they did in 2009.