Analysts say debt ceiling collapse could derail tech

WASHINGTON, DC - JULY 27: Speaker of the House John Boehner (R-OH) (C) arrives at the U.S. Capitol July 27, 2011 in Washington, DC. Earlier this week Boehner proposed legislation to to raise the federal debt limit but the Congressional Budget Office said his plan would cut spending by $850 billion during the next ten years, about $150 billion less than than he said it would.
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Speaker of the House John Boehner arrives at the U.S. Capitol July 27, 2011 in Washington.
Speaker of the House John Boehner (R-OH) arrives at the U.S. Capitol July 27, 2011 in Washington, DC.
Chip Somodevilla/Getty Images

As Washington D.C. bickers over whether to issue the country another credit card in the form of the U.S. debt ceiling, Forrester Research predicts that the outcome will affect technology spending.

In a blog post, Forrester analyst Andrew Bartels said Forrester was planning to project 7.4 percent growth in IT spending for 2011 and 10.4 percent in 2012.

However, the outcome of U.S. debt ceiling talks will swing those forecasts. After all, the Feds are a big buyer of technology.

Bartels wrote:

Our forecast did recognize three threats to economic growth, and thus three risks to our forecast: 1) a failure to reach a sensible resolution to raise the US debt ceiling and start on a path to lower budget deficits; 2) a failure of European governments to reach a sensible resolution to the Greek debt crisis that lowered the Greek debt burden and reduced the risk of a broader debt crisis that included Italy and Spain; and 3) overreaction by China and India to rising inflation that reduced their growth.

Greece is defused for now, large tech vendor earnings have been solid and it’s too early to ponder China and India just yet.

That leaves the U.S. debt ceiling. See CBS News for the latest:

Bartels outlines the following:

  • If the debt ceiling isn’t raised by Aug. 2 and the U.S. default, Forrester will cut its 2011 IT spending forecast to 5.5 percent. Bartels reasoning revolves around the aftershocks of a U.S. default. Credit markets will be rattled and many IT projects depend on financing.
  • Other IT spending hits will revolve around what proposal is ultimately accepted. In any case, IT market growth will slide a bit. Bartels added that the technology market should outpace the U.S. economy as long as there isn’t a recession.

In other words, technology projects may fall into the limbo zone. Juniper Networks this week already outlined spotty spending. Networking companies such as Juniper and Cisco typically spot a slowdown in IT spending first.

Juniper CEO Kevin Johnson said:

In early June I spoke in an investor conference is focused on macro signals we were seeing in the market. With continued use of coverage topics including the sovereign debt situation Europe, rising at a point in US opposite consumer confidence, the impact of the disaster in Japan, and lower GDP expectations in many parts of the world, it is evident that people are trying to digest the macro economic signals and understand what impact they are having on the buying patterns of customers.