Software & Technology

U.S. tech spend: tracking the downturn in GDP growth

With the deepening of the financial crisis, the U.S. economy witnessed a sharp downturn during the period from Q3 2008 to Q2 2009. The nominal GDP contracted 2.2% in Q2 2009 as compared to a 3.6% growth registered in Q2 2008. Business confidence remained at a historically low level from Q4 2008 to Q2 2009, resulting in job cuts, resource optimization, and delay in planned spending. The restrictive credit terms, shortage of work, weaker corporate balance sheets and uncertain economic prospects all led to a dip in household and business spending. In line with the broad-based economic slowdown, IT expenditure by businesses across industries registered a sharp decline since Q4 2008. IT expenditure in the U.S. declined by 15.0% in Q2 2009, against a growth of 5.0% in Q3 2008.

Although the broader economic recession swept through much of the world, the depth of the recession varied across countries and industries. The stability of the banking systems played a major role in fighting recession and countries with a more stable banking system showed a better outcome. With the bankruptcy of Lehman Brothers in Q3 2008, and the fund crisis afflicting other major financial sector entities, the crisis affected the U.S. more than any other country. Banks and other financial institutions were not ready to lend money to each other and to consumers on easy terms, hampering major capital investments and growth for U.S. companies. Due to unavailability of easy funding, companies in the U.S focused on cash saving and slashed their capital investments significantly. A sharp interest rate cut, in the range of 0% to 0.25%, by the Federal Reserve, and unprecedented liquidity measures have been able to stabilize the credit markets in the U.S.

In comparison to the U.S., the real GDP contraction was sharper for Canada in 2008 and the first half of 2009, but the more stable nature of its banking system and availability of funds in the market helped Canadian companies invest more in IT during this period.