Slow software spending
Software spending in Eastern Europe will total Euro 4.6 billion and grow 4 percent in 2009, the slowest year-on-year growth of all emerging regions, according to Gartner. Eastern European economies have been one of the hardest-hit regions of the economic downturn, with economic forecasts dramatically changing from a relatively buoyant outlook anticipated last year to a bleak vision for 2009 and 2010.
By comparison, the software spending in the other emerging regions such as, Latin America, Asia/Pacific and Middle East and Africa will grow at 17.7 percent, 16.7 percent and 6.6 percent respectively in 2009.
“Until recently, the growth in Eastern Europe has benefited from high commodity prices, manufacturing exports, and a boom in construction,” said Fabrizio Biscotti, research director at Gartner.
“As the economic crisis unfolded, the region has been affected by the fall in commodity prices, the collapse of exports to Western Europe and an evaporation of credit. This downward economic climate has also led to a significant slowdown in software spending.”
In general, there will continue to be a strong correlation between GDP performance and software spending, so much so that the slowest regional economies of Ukraine, the Baltics, Hungary, and Macedonia are expected to be the slowest software markets.
In terms of size of spending in Eastern Europe, Group A countries collectively represented almost two-thirds of the spending in 2008, while Russia alone generated about a quarter of spending. Group C and Group D had relatively marginal levels of spending.
As far as software segments are concerned, the applications market has seen a severe growth slowdown since 2007, from 23.6 to 13.1 percent in 2008 and will continue to slowdown in 2009, with a projected 3.4 percent growth while the infrastructure market is predicted to grow 4.5 percent this year.
From a vertical perspective, financial services spent the most on software spending in 2008, accounting for 21.7 percent of Eastern Europe software spending.
“However, the troubles affecting the region’s banking sector will negatively reflect on the overall spending in 2009. The situation has the potential to stabilise if the foreign owners of the top local banks just delay their funding of the subsidiaries. Conversely, it could also go terribly wrong if these owners decide to disengage completely from the region,” said Vittorio D’Orazio, principal research analyst at Gartner.
The communications and manufacturing segments accounted for 15.2 percent and 12.9 percent of Eastern Europe software spending in 2008. These markets will especially suffer from the lack of credit at banks and lower foreign direct investment (FDI).
However, some Eastern European manufacturers will gain from operations being “nearshored” by their Western counterparts, while the communications sector is still benefiting from the mobile operators’ boom in recent years and this is still producing a resilient trend.
In 2009 and 2010, the government and utilities sectors are expected to show positive activity. However, the government’s limited ability to spend together with telecom carriers will hardly offset the anticipated slow performance of the large financial services, manufacturing and retail industries through 2010.
“Our expectation is for Eastern Europe to begin to recover in mid-2010 and return to grow above the worldwide total software market growth,” concluded Biscotti.
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