The 2008 edition of the OECD Information Technology Outlook (December 2008) showed that the downturn in the ICT sector was deepening rapidly and that official short-term indicators had not yet started to show the depth and rapidity of the decline. Tracking the rapid slump in the ICT sector has been particularly difficult. Unlike the 2001-2002 recession which began with the bursting of the Internet bubble, the current recession began in the financial services sector due to deep-seated systemic weaknesses in OECD banks and insurance companies. The financial crisis rapidly worsened and spilled over from the United States to other countries and fed the subsequent crisis in the real economy. Despite massive government attempts to stabilise it, the financial system remains fragile, undermining global economic activity, and unemployment is rising rapidly.
The magnitude of the financial crisis and subsequent deep economic recession were difficult to foresee. OECD macroeconomic projections shifted down sharply in the 10 weeks from early September 2008 to mid-November 2008, from a rapid slowdown in growth and the onset of recession in some OECD countries to the OECD area as a whole entering recession and unemployment rising in many OECD countries. The subsequent OECD Interim Economic Outlook in March 2009 and the OECD Economic Outlook in June 2009 have tracked the development of the deepest and most wide-spread global recession for more than 50 years, with real GDP declining in all OECD countries in 2009, non-OECD countries slowing sharply, real world growth turning negative, and trade declining rapidly in real terms.
Tight financial conditions and a generalised loss of confidence were projected to continue, but the June 2009 Economic Outlook was the first in two years to revise upwards the growth projections. Recovery appeared to be in motion in large non-OECD countries, particularly China, US activity could potentially bottom out in the second half of 2009, and Japan’s trade-induced contraction looked to be close to the end, although the euro area was not displaying clearly visible signs of recovery. Against this background, the outlook for the ICT sector has been particularly hazardous to position. A major challenge has been to develop an indicator base to better assess near-term trends.
There are three drivers of ICT production. First, longer-term prospects and trends for the ICT sector remain good, with cyclical and structural growth continuing across many segments, as ICTs become embedded in all economic, social and cultural activities (see OECD, The Seoul Declaration on the future of the Internet economy, 17-18 June 2008). Second, ICT investment is volatile. On the investment side this is due to the “acceleration principle”. Investment is approximately proportional to the rate of change of output. This magnifies changes both upwards and downwards in periods of growth and slump. Third, consumer spending is under pressure and has dropped sharply. Consumer confidence has fallen very rapidly with the collapse of the house price bubble and stock markets. People feel less rich despite unchanged income (the “wealth effect”), there is rapidly rising unemployment (potentially reducing consumption expenditure) and increasing worries about job security (increasing household savings). Thus there are major downward pressures on ICT expenditures, particularly on goods expenditures.
To map the impacts of the crisis the next section analyses the performance of the ICT sector with data drawn from official statistical sources. The following section reports OECD analysis of quarterly reports of the largest ICT firms. The third section elaborates on the likely supply and demand factors re-shaping the sector in the economic crisis and the impacts on ICT diffusion and use. The paper closes with a discussion of ICT policy, a brief survey of relevant programmes in current government economic crisis packages, and interactions between current ICT policy and economic crisis packages.
The analysis in this report is designed to address the following questions:
- What is the depth and extent of the current downturn in the ICT sector?
- How does it compare with the 2000-2001 recession? Are some sectors and countries performing better than others?
- What are the likely near-term effects of the recession and recovery in the sector?
- Is there a changing role for ICT policy? What impacts will crisis packages have on the ICT sector and the use of ICTs across the economy?
CONTENTS
SUMMARY
INTRODUCTION
PART 1. RECENT AGGREGATE ICT PRODUCTION TRENDS
PART 2. PERFORMANCE OF TOP ICT FIRMS IN EIGHT ICT SECTORS
PART 3. ICT SECTOR CHALLENGES AND OPPORTUNITIES
PART 4. ICT POLICY AND THE ECONOMIC CRISIS
REFERENCES
ANNEX FIGURES
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