Global Financial Firms To Slash IT Spending In 2009 Despite Moderate Growth, Analysts Say

New York, NY - Although the global financial services have experienced some growth, they are expected to cut down on their information technology spending over the next 12 months. Technology companies are expected to experience further slowdown in demand as other sectors will follow the suit.

A report released by Jacob Jegher from Celent indicated that global information technology spending by financial services institutions will be down by 1.3 percent to $353.3 billion in 2009, compared to the IT spending recorded at $358 billion in 2008.

The growth in the sector was at 4.5 percent in 2008, compared to 6.4 percent reported in 2007, the research report showed.

In a separate report by Forrester Research, technology spending by both business and government on computer, software and communications products and consulting services is expected to drop by as much as 3 percent, which is the first drop since 2002 when the spending was sharply cut by 6 percent from the prior year.

So the next couple of years for the IT companies will be challenging, further affecting their sales revenue.

"While the financial crisis, economic conditions, regulatory issues, competitive pressures, and customer needs have all contributed to the changes, a more fundamental area has truly revolutionized the industry—technology," Celent's Jegher said. "Technology’s radical implications in the financial services industry have grown exponentially."

Jegher, however, expects the financial firms to increase spending by 0.9 percent to $364.5 billion to 2010. While, Forrester anticipates the spending to surge by as much as 9 percent next year.

As the economies continue to sink deeper into the quicksand of recession, the current IT investments by the financial services institutions in Europe and North America account for 37.7 percent and 33.5 percent, respectively.

The small difference in the spending is due to the dollar parity. Strengthening U.S. greenback is expected to slow down the growth rate of technology spending in European region.

The analysts at Forrester Research also expect the similar consequences. The technology spending in Western Europe will decline by as much as 7 percent in 2009 due to the currency discrepancy. But tech spending in euros will be up 1 percent.

Spending by financial firms in Asia-Pacific represent 23.3 percent. Growth will continue to rise in this region, and total spending in Asia-Pacific is expected to reach $90.3 billion in 2010, Celent's Jegher said. While, Latin America and Africa reflect the remaining 5.6 percent.

Technology is a crucial operating requirement for the banking industry and the IT spending accounts for the biggest potion (50 percent) of the total purchases.

The sum of bank IT spending across North America, Europe, and Asia-Pacific will grow to $160.4 billion in 2008, which is around 4.7 percent higher than 2007, Jegher noted. However, Celent expects total IT spending by banks in these regions to fall to $158.9 billion in 2009 as North American and European banks will not fare nearly as well in terms of growth.

"IT dollars will be hard to come by after compliance/regulatory spending and maintenance expenditures." Jegher wrote. "Banks will be forced to be creative with their funds to make investments go as far as possible."