The market for IT and telecoms in the European Union will increase 2.9 per cent this year to reach €668bn, according to the European IT Observatory (EITO).

A new report shows that IT is proving to be a reliable source of growth, turning over €320bn this year. This represents an increase of 4.4 per cent.

Software and IT services are booming, with increases of 6.5 and 5.5 per cent respectively. There is also strong demand for professional IT services like outsourcing, consulting and system integration.

The hardware market is expected to grow by 1.7 per cent in 2007 and by 2.2 per cent in 2008.

Notebooks and multi-function peripherals are creating an increase in demand, while the market for desktop PCs is shrinking. EITO expects an overall market value in IT of €335bn in 2008.

"The European ICT industry continues to grow steadily, with IT services, software applications and broadband data services as the main drivers," said EITO chairman Bruno Lamborghini.

He added that the European ICT market should grow by around 2.9 per cent in 2008, to €687bn.

However, growth in the EU telecoms market is lower than in IT. The market in the EU will increase this year by 1.5 per cent to €348bn and by 1.1 per cent to €352bn in 2008.

The market for consumer electronics has further potential for growth, EITO said. The Western European consumer electronics market is currently increasing by around 2.5 per cent per year, driven largely by flat screen televisions.

"Digital technology has largely displaced analogue products. The industry now makes three quarters of its turnover with digital equipment," said Lamborghini.

"The European Union has to face the global challenge. This can be achieved by exploiting strategic assets such as the EU's advanced communications infrastructure and services, as well as the world's largest market for education, comprising close to half a billion people.

"But at the same time Europe needs to put an end to its present weaknesses: market fragmentation, too little investment for R&D in ICT, limited high-tech start-ups, and insufficient preparation and mobility of people with the right kind of skills."