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Gartner Dataquest's overall IT spending projections (which are published in the "Gartner Dataquest Market Databook, December 2002 Update") include IT spending for the business and consumer markets, but do not include internal IT spending.

According to the report, the industries that are projected to show the strongest growth in 2003 and 2004 are government and healthcare, but even these segments will attain only single-digit growth.

"While federal government spending on the defense sector will drive government technology expenditures, civilian and intelligence agency segments will also see real growth in technology spending during the next two years," said Rishi Sood, principal analyst for Gartner Dataquest's IT Services group. "Key issues that are increasing technology investments will include Homeland Security, outsourcing, and agency modernization projects. In contrast, state and local government will have a contraction in IT spending in 2003 as new governors reassess priorities in light of historic budget deficits."

In healthcare, the leading drivers of IT investment include patient safety, the rising cost of delivering and managing healthcare, the need for integrated cost containment strategies, rapidly changing patient demographics and demands, the push for process standardization and automation, and regulatory requirements, such as the Health Insurance Portability and Accountability Act (HIPAA) of 1996.

"Across the industry, healthcare organizations are investigating the benefits and costs of IT and business process outsourcing (BPO)," said Geraldine Cruz, senior analyst for Gartner Dataquest's IT Services group. "Despite the compelling drivers to IT spending, the healthcare industry's constrained ability to invest capital, and its difficulty embracing IT systems, will hinder new IT initiatives."

The largest global vertical markets - financial services, manufacturing, government and communications - will make up 67 percent of worldwide business IT spending in the vertical markets in 2003.

Gartner Dataquest analysts said the two largest major industries, financial services and manufacturing, will see modest growth rates in IT spending in 2003 and 2004.

"Manufacturers continue to experience budgetary constraints, systems integration headaches, insufficient return on investment (ROI) from previous IT investments and a lack of hot new applications and technologies," Cruz said. "Through 2003, manufacturers will require demonstration of ROI over the short term before giving budgetary blessings to new IT projects, as well as drive IT initiatives to maximize existing IT investments."

Financial services organizations are expected to spend cautiously in 2003 and then boost IT spending by 2004.

"New clusters of spending in 2003 will include branch transformation and flexible infrastructure initiatives in securities and insurance," said Susan Cournoyer, senior analyst for Gartner Dataquest's IT Services group. "By 2004, BPO will surge, notably in insurance and investment banking."

Additional information is available in the Gartner Dataquest Alert IT Forecasts: Spending Recovery in Most Vertical Markets, which examines the outlook for worldwide IT spending in vertical markets through 2006. The report can be purchased on Gartner's Web site.