Canadian IT spend under pressure

Canada is facing opposing forces that are dictating the growth of its IT economy, but overall the outlook is reasonably solid, according to a Forrester analyst.

Andrew Bartels, a vice-president in Forrester’s industry economics and data research team, published a report this month called “Canada IT Spending in 2006.” In it he identifies two main factors that are shaping that spending: a booming energy economy and a weakened U.S. dollar. The former is helping to fuel growth, while the latter may slow technology spending in some sectors.

Canada’s natural resources economy is spurring IT investment, particularly for the Western provinces, which are enjoying considerable growth in the oil and timber markets, said Bartels. But with the American and Canadian dollar approaching parity, other sectors, such as manufacturing, are feeling the squeeze. The weak U.S. dollar is hampering Canada’s export markets, said Bartels.

“What is clearly happening is, a lot the non-commodity sectors in the Canadian economy are hurting a bit. As a result, there’s a tendency to cut back on IT investment,” he said.

The opposing forces of boom and cutback have created a two-market economy in Canada, said Bartels. Energy markets are surging, but “the manufacturing sector is (feeling) more pain and that is reflecting in the spending patterns in new technology.”

But there are limits to cutbacks, said Bartels, and even companies that are adversely affected by the U.S. dollar will still have to maintain a minimum level of IT investment in order to remain competitive.

Overall, Forrester projects that 2006 IT spending from Canadian governments and businesses will grow four per cent. Investment in computers, network equipment and software will increase by five per cent overall. Canadian economic growth will be slower than that of the U.S. in 2006. According to Bartels’s report, the top priorities for Canadian enterprises this year will be IT consolidation and corporate governance.

The Canadian economy didn’t feel the technology recession of 2001-2003 as deeply as the U.S., said Bartels. As a result, the apparent recovery in 2004-2005 wasn’t quite as pronounced in Canada.

The “rebound” growth on both sides of the border is showing signs of slowing down, said Bartels, hence the modest IT spending projections for 2006.

Predictions for this year follow the classic “glass half full” scenario, said Bartels: “It’s certainly not bad news. We’re not seeing major cutbacks, but on the other hand, the fact that investment and spending is slowing, it does raise concerns.”

In his report, Bartels points out that his spending forecasts err on the side of caution. If they turn out to be wrong, they are likely to be too low rather than too high. Buoyed by growth in Canada’s energy sector, there is “quite a bit of optimism” among Canadian enterprises.

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Jim Love, Chief Content Officer, IT World Canada

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