Oil price hike may stifle IT growth

The unrelenting increase in oil prices is not only hitting commuters badly, it may also set back IT investments, according to analyst firm IDC Canada.

IT investments are expected to grow this year, but if the recent phenomenon of rising fuel costs continues, there may be “inevitable retrenchment” in technology spending, Denis Vance, chief research officer, IDC Canada, said yesterday.

Vance delivered IDC’s Mid-Year Forecast 2005 during a live Webcast.

“In general, there is a positive picture (for IT growth) but the real wild card is the price of oil,” Vance said.

Last January, IDC expressed concern that reaching a US$50-range in oil prices may compel companies to “scale back” some of their business expectations. On Monday, the price of oil was over $60 per barrel.

It was also last January that IDC predicted an estimated 2.8 per cent growth in Canadian IT market for 2005, Vance said. “IDC believes that with current condition, 2.6 per cent (growth) is more likely.”

IDC analysts suspect the oil price hike is being driven by speculation, rather than a real crash in supply, said Vance. “The question is: how long is it likely to stay there?”

Despite this setback, however, the market remains positive as companies continue to allocate more dollars for IT initiatives. The estimated growth for 2005 is $37.2 billion. IDC predicts a four per cent across the board growth in IT spend this year, and a 3.2 per cent compounded annual growth from 2004 to 2009.

Corporate profits are estimated to reach the nine per cent range, a leap from IDC’s January prediction which was pegged at five per cent, Vance said.

According to IDC’s March 2005 IT Advisory Panel, a survey of over 500 IT executives, 79 per cent say they are either sticking to their original IT allotment or spending more for the second half of the year, Vance said. “We call that pretty encouraging.”

Push for productivity is the “overarching business issue” for executives, and most of the dollars spent on IT initiatives will be directly related to productivity goals, said Vance.

“We really can’t encourage (vendors) enough to ensure that the solutions offered to customers and the value proposition used directly affects the push for productivity,” he said.

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