Worldwide IT spending will grow 5 per cent this year driven by an improving global economy and the need for users to resolve infrastructure problems, analyst IDC said yesterday.

Growth is coming back to IT spending after two years of decline in 2001 and 2002. Last year IT spending was up 2 per cent over the previous year, beating IDC's 1.2 per cent growth forecast, IDC Chief Research Officer John Gantz said speaking at IDC's Directions 2004 event in San Jose, California.

Worldwide IT spending was $871 billion in 2002, according to a December IDC report.

IDC's 5 per cent growth forecast for 2004 is one percentage point above that of worldwide IT buyers recently surveyed by the research company, Gantz said. There is pent-up demand that buyers did not report and governments will likely spend more, he said.

The survey shows that US buyers expect a 5 per cent IT spending increase, Western European buyers foresee a 2 per cent rise, their Japanese counterparts see spending going up 3 per cent and in Asia Pacific without Japan 7 per cent growth is expected, resulting in a worldwide average of a 4 per cent increase, Gantz said.

While an improving economy and necessary infrastructure upgrades are the expected drivers for IT spending in 2004, other motivators listed by US IT buyers in a recent survey are more interesting, Gantz said.

"What I like is new product innovation and customer demand," Gantz said. New product innovation was listed by about a quarter of respondents, and customer demand by just under a third, according to a slide Gantz showed.

As spending picks up, IT departments are also less focused on cutting costs: "Cost cutting has finally moved down the stack," Gantz said. Users in the survey described infrastructure and software as more important than cutting costs, he said.

IDC's forecast calls for worldwide IT spending to pass the $1 trillion mark in 2006 and hit $1,041 billion and $1,108 billion in 2007.

After 2004, IDC expects growth to level, with 6.5 per cent in 2005, 6.8 per cent in 2006 and 6.4 per cent in 2007, according to the December report.

As the world's population ages, there will be a relentless need for IT to increase worker productivity, Gantz said: "We're not breeding fast enough to support ourselves".

Growth won't automatically translate into sales for vendors. They need to switch from a marketing strategy aimed at just getting leads to one of getting their brand out again, Gantz said. But vendors also have to adapt to buyers who are tougher and more judgemental than in the boom years, he added.