IDC has pegged back its forecast for IT spending, citing the continued economic malaise and prolonged uncertainty about Iraq.

At the end of 2002, the analyst group forecast that IT spending would grow by between 8% and 9% over the next four years. Now it is forecasting growth of 6.5% to 7% for that period. However, IDC’s forecast still represents good news. Worldwide IT spending shrank to $857 billion in 2002, but will grow by 3.7% this year, eventually topping $1 trillion by 2005.

At the peak of the IT spending boom in 2000, IDC analysts had predicted that the industry would hit the $1 trillion mark in 2001.

“While the industry is not expected to rebound to the growth levels of the late 1990s and 2000 in the near term, we still expect to see a gradual recovery to healthy industry expansion, contingent upon a recovery in the wider economic environment,” said Stephen Minton, IDC’s program director for worldwide IT markets.

He added: “A return to double-digit growth may well be dependent on the kind of paradigm shift that we currently do not envisage in the short to medium term, but industry growth of 7% by 2004 represents a significant rebound.”

Software is expected to be the fastest growing sector, rising nearly 5% to $186 billion in 2003. The highest demand, suggests IDC, will be seen for software that helps make more efficient use of existing resources, such as storage management software. IT services, meanwhile, are expected to grow by about 4%, to $368 billion. And while the hardware sector is only expected to grow by 2.8% to $335 billion, that represents a significant turnaround from last year, when it shrank by 11%. “There is a lot of old stuff out there that needs replacing,” said Minton.