Tipping Point

Technology does not have a life of its own. That seems to be the message of a new forecast from Forrester Research describing a statistical pattern that strongly links the fortunes of the technology sector to GDP. The Forrester TechStrategy Brief, titled “The Tipping Point in 2003,” suggests that if technology makes a recovery in 2003, it will probably follow the pattern of the last few years: When nominal GDP expands by more than 4.5% over the previous year, the technology sector expands. When GDP fails to achieve at least 4.5% growth, the technology sector generally contracts.

Conflicting indicators have created some confusion about the state of the economy in general, but it is clear that it has not reached this “tipping point” since the fourth quarter of 2000. Projected figures for the technology sector in 2002 show it sinking 7.9% below the 2001 level. Prospects for technology growth this year are possible if Forrester’s forecast of 5.0% GDP expansion is accurate.

Technology doesn’t just track above and below the tipping point; it tends to outpace the GDP growth rate in either direction by 9.5% for every 1% of GDP growth. A possible cause for this dramatic difference is the fact that spending on technology is discretionary. A slow economy keeps businesses from buying important durables, while a stronger economy releases demand.

U.S. Tech Recovery Scenarios
2002 2003 2004
% change -4.9 +10.3 +17.5
% change -7.9 +5.6 +10.7
% change -11.3 +0.8 +3.2
Source: Forrester Research Inc.
Note: Numbers have been rounded.

So what does the future hold? Forrester predicts that GDP will grow 5% in 2003, resulting in a tech sector expansion of 5.6%. A worst-case scenario for that period shows tech growth of merely 0.8%. It will be 2004, however, before the GDP is likely to reach even 5.5%, which in turn would herald a rise in tech revenue of 10.7%.

For more information about the study, call (617) 613-6000 or visit www.forrester.com.

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