Merrill Lynch: Tech Spending Will Increase 4.2% In 2007

So much for the Vista bounce. Merrill Lynch says the growth rate for corporate tech spending will increase only modestly in 2007, but notes that certain sub-sectors of the IT industry, such as consulting and integration services, will enjoy a more bullish year. In fact, the overall rate of growth will be less than 1%.

According to the survey of 50 U.S.-based CIOs, released Wednesday by the investment bank, overall IT spending by businesses will increase by 4.2% in 2007, compared with growth of 3.4% in 2006. Tech spending grew 4.4% in 2005, Merrill Lynch notes.

The numbers are, of course, subject to change--but most likely not for the better. Merrill Lynch notes that in 2006, 20% of CIOs surveyed spent below their initial budget, while only 6% went over budget. "We believe CIOs will initially take a conservative approach with their IT budgets at the start of the year and gain a better sense as the year unfolds," said Merrill Lynch analyst Gregory Smith, in the survey report.

Though overall tech spending growth will be modest in 2007, businesses appear poised to increase the percentage of their budgets dedicated to contractors—specifically, consultants and system integrators. Spending on such projects will increase 4.6% in 2007, Merrill Lynch says. "The recovery in the IT services market has been supported by a recovery in spending on project-based services," Smith notes.

By comparison, spending on large scale IT outsourcing projects will grow 2.7%, while spending on business process outsourcing will rise 2.1%. CIOs plan to allocate an additional 2% of their budgets to work farmed out to offshore service providers in India in 2007, the survey also found.