After years of double-digit growth, Europe’s IT expenditure will dip to 0.7 percent growth in 2002 and flatten out to 7 percent annual growth in 2004, according to a new brief by Forrester Research B.V. (Nasdaq: FORR). The culprits: slow population growth, years of excessive demand for IT skills, and low penetration of the Internet.

“Europe’s slow recovery in IT spend will influence its overall economic recovery, but Europe can change the tide by increasing its reliance on technology, socializing technology, and supporting open source technology,” said Forrester Senior Analyst Charles Homs. “Globally, almost 40 percent of the productivity gains of the past decade depended on IT investments. To keep its social structure untouched, Europe should re-emphasize its reliance on technology and gain productivity increases through technologies like mobile commerce and biotechnology. To help provide a socially acceptable environment, Europe should spend more on e-enabling its education and government. Governments should spend the billions that were earned by UMTS auctions on providing schools with decent, affordable technology. Finally, only 26 percent of all IT technology has its origin in Europe, but to build its own IT sector would take decades. Instead, Europe should rely more on open source systems like Linux — which originate in Europe anyway.”

While the US predicts double-digit IT spending growth by 2004, the European economic climate will steer towards a moderate IT recovery where total IT spending will grow only 6 percent in 2003, Forrester believes. Europe’s IT bubble — excessive IT spending compared with the normal growth trend — equaled €33 billion in 2000, compared to €48 billion in the US. This IT overspending impacts the recovery curve of all European regions. The UK will recover in 2003 to remain Europe’s biggest IT spender; Germany loses ground, but remains Europe’s second biggest market; France won’t recover until 2004; Benelux dips badly but will recover in 2004; and Southern Europe outperforms the rest of the Continent.

UK IT spending dropped 6.2 percent in 2001 from €54 billion to €50 billion, a smaller drop than most other European countries, and its large number of IT vendors and its springboard function for US technology will get it back on track quickly. While Germany’s economy came to a virtual standstill in 2001, it will resume some of its potential in 2002 with an anticipated GDP growth rate of 1.5 percent. Total IT spending declined by €10 billion in 2001, and it will take until 2005 to recover to the 2000 situation. But with an IT sector worth €50 billion by 2003, the German economy remains the second biggest IT market, after the UK.

With 18 percent of the total European IT expenditure, France remains the third largest IT investor in 2002. IT spending in France will stay in the meager 5 percent to 6 percent growth rates for the coming four years. The Benelux region makes up 8 percent of the total European IT market in 2002, but the US downturn badly affected the region, as 60 percent of its GDP relies on exports. As a result, Benelux was the second biggest loser in 2001 after Germany. Over the past few years, Italy saw IT spending grow faster than the European median, but the total Southern European market makes up 14 percent of all European IT spending, even though the population makes up 27 percent of the total European population. Spain will have the biggest growth potential for IT — from its small base of €10 billion of total IT spending in 2001, it will get close to 10 percent growth after 2003.