Demand for software and IT services will continue to grow steadily in Europe this year, but sluggish performance in the telecommunications sector will dampen the reasons to celebrate, according to a forecast released ahead of the Cebit trade show later this month.

The overall information and communications technology (ICT) market will grow by only 2.9% in 2007, to €668 billion (£460bn), the European Information Technology Observatory (EITO) predicted in its annual report. That's slightly slower than last year, and well down from 2005 growth of 4.1%.

The IT sector, including software, hardware and services, will show the strongest growth, up 4.4% this year to €320 billion, the EITO said. Software spending will lead the way, increasing by 6.5% this year, compared with 6.3% in 2006.

IT services, including outsourcing, consulting and systems integration, will grow by 5.5%, up from 5.3% in 2006. Hardware revenue is expected to grow just 1.7% in 2007, driven by notebooks and multifunction devices such as printer-scanners. Demand for desktop PCs will dip slightly, the study said.

In 2008 Europe's IT sector will grow slightly more quickly at 4.7%, the EITO said, to reach €335 billion.

The market for telecommunication products and services, by comparison, is expected to grow only 1.5% this year, to €348 billion, and by 1.1% in 2008.

The biggest sales-generator for telecommunications this year will be broadband access systems, particularly Digital Subscriber Line (DSL) modems in homes. More than 42% of European homes are now connected to the internet via broadband access systems, the report said.