Canadian IT spending will grow by 3 percent in 2004, led by government spending, according to a new document from Forrester Research, Inc. (Nasdaq: FORR). GDP growth is a key factor in driving business investment in IT, just as in the US, but a slower Canadian economic recovery and the adverse effects of a stronger Canadian dollar on exports are causing a one- to two-quarter lag behind the US.

In developing the forecast, Forrester surveyed more than 30 large Canadian firms and analyzed data on IT spending and employment from sources like the Statistics Canada Bureau. The survey revealed that Canadian IT decision-makers see 2004 as either an extremely challenging year (10 percent) or a somewhat challenging (42 percent), with only 32 percent planning to increase their IT budgets as compared with 2003 IT budgets.

While Canada’s IT spending is fairly similar to the US’, there are unique patterns, such as:

  • Canadian government IT spending is stronger than Canadian business IT spending, as governments continue to spend on eGovernment initiatives and the replacement of antiquated systems at local, municipal, and regional levels. Canadian businesses are more reluctant to increase IT spending.
  • Software represents a smaller share of expected 2004 Canadian IT spending than in the US. The Canadian economy has a higher portion of larger enterprises compared with the US, many of which already bought their infrastructure, integration, and application software.
  • Canadian firms in 2004 will devote a larger portion of IT budgets to IT services than will US firms. Application development or implementation and Web site design top the list for spending increases for 2004.
  • Historically, Canadian firms have spent more on outsourcing, but demand is weakening in most categories.

Internet and eCommerce initiatives, networking equipment, and PCs are areas where high proportions of Canadian firms plan to increase spending, while application software and servers attract less interest:

  • 42 percent plan to increase spending on Internet and eCommerce initiatives.
  • 39 percent will spend more on networking equipment.
  • 35 percent will step up outlays on PCs and workstations.
  • The 31 percent that will buy more servers are offset by an almost equal number (28 percent) that will buy fewer.
  • Only 26 percent will purchase more software, with stronger buying intentions on portals, security and systems management, and content management software.
  • 19 percent of Canadian firms plan to hire more IT staff in 2004, compared with the 7 percent that will cut staff.

Given these prospects, Forrester recommends that IT vendors prepare for the growing demand in selected areas today — portals, eCommerce, and security solutions — and for a stronger Canadian IT market in 2005. However, prospects for higher Canadian IT spending in 2005 depend on a strengthening Canadian economy. A continued rise in the Canadian dollar against the US dollar in 2004 could hurt Canadian exports, dampen economic growth, and thereby keep Canadian IT spending in a holding pattern through 2005.

The research mentioned in this release, “Canadian IT Spending Up 3% In 2004,” can be found at