Needham, USA: Global IT and business services revenue is expected to grow 5.6% (in constant currency) in 2022, according to IDC. In nominal dollar-denominated revenue based on today’s exchange rate, the market will grow by 4.2% year over year, due to forex fluctuation.
Despite the ongoing Ukraine-Russia war, IDC forecasts that the IT and business services market growth in 2022 will see an increase of 160 basis points compared to its last year’s October forecast.
Robust 2021 bookings and pipelines by several large services providers and the inflationary impact on the services market have led to the improved positive forecast with a slight offset by the negative impact of the Ukraine- Russia conflict.
IDC believes that the market will continue to expand throughout the next few years at a rate of 4-5%, representing an overall increase of 40 to 80 basis points each year, pushing the market’s long-term growth rate to 4.6%, up slightly from the previous forecast of 4.3%.
The Americas services market is forecast to grow 5.3% in 2022, up 150 basis points from the October 2021 forecast (in constant currency.) This is mainly due to a faster economic rebound and the impact of inflation. IDC believes that the trend will continue in the short-term: 2022 and 2023 growth rates were adjusted up by 150 and 100 basis points, or around 4% year-over-year growth for the next five years.
IDC’s mid-to-long-term growth prospects for Canada and Latin America improved marginally. Both regions will continue to see recovery well into 2022 and 2023. Latin America’s near-term growth outlook is further lifted by the commodity price rally since March. The U.S. market outlook has also been also adjusted up by 160 and 80 basis points for 2022 and 2023, respectively.
EMEA, Central and Eastern Europe
IDC has raised the 2022 growth forecast for EMEA (Europe, Middle East, and Africa) by more than 220 basis points. While Europe is the most impacted region by the ongoing Ukraine-Russia conflict, IDC remains sanguine in the region. It has cut the Central & Eastern Europe (CEE) forecast significantly due to the conflict in the region.
It expects the CEE services market to grow only by 5.5% and 7.3% in 2022 and 2023, respectively, down from the previous 9-10% growth forecast. Russia and Ukraine markets will shrink significantly this year.
Western Europe’s near-term growth forecast has been adjusted. IDC now forecasts the region to grow by more than 6% in 2022, up by 280 basis points from our last forecast. The improved outlook is largely due to the EU’s revised 2022 GDP outlook at the end of 2021 (prior to the Ukraine-Russian crisis).
IDC continues to see EU-funded investments driving services spending. Inflation also contributed to nominal growth, although to a smaller degree. This was partially offset by the Ukraine-Russia conflict. Last month, IDC’s assumptions about the crisis were more of a neutral scenario (limited military escalation and disruption to the global supply chain).
But now it believes that the crisis will dampen further. And Western Europe’s mid-term market growth will be offset by other drivers. Of course, because the situation is ever-evolving, its actual impact on the EU economy may be more severe than expected.
IDC has raised the Middle East & Africa’s (MEA) growth prospects for 2022 and 2023 by 250 and 100 basis points, respectively. This is due to a strong rebound from the pandemic and economic malaise, particularly in previously beleaguered markets such as Turkey, as well as rapid IT infrastructure spending, including hyper-scale buildouts.
IDC is more bullish on the MEA market and believes that the negative impact of the Ukraine-Russia crisis on the region will be only marginal.
Asia Pacific market
Unlike other regions, the Asia-Pacific’s growth outlook improved by 0.9 percentage points in 2022, largely due to PRC (China) and other developed Asian markets (i.e., Australia, Japan, Singapore, Korea, etc.).
Japan’s growth rate marginally lifted by 0.2 to 0.6 percentage points per year for the next five years. While Australia, New Zealand, Korea, and Singapore all saw adjustments of 100+ basis points in 2022 and 2023 growth rates.
China’s market growth forecast adjusted up to 6.4% and 8% for 2022 and 2023. While China’s GDP growth is expected to cool down, IDC believes that digital transformation remains central to the country’s long-term “new infrastructure” initiatives. This will further drive services spending in both the public sector and strategic industries such as BFSI, manufacturing, and energy.
Within the IT and business services markets and across all regions, cloud-related services spending has been the main growth accelerator since 2020. IDC forecasts it to continue to grow close to 20% year over year in 2022 and between 15% to 20% over the next three years.
IDC is also seeing more services providers crossing over from IT and business services to operational technology (OT) services, based on figures from IDC’s new Tracker for services spending on the OT side (also defined by IDC as Digital Engineering & Operational Technology Services (or DEOTS)).
Even after accounting for the supply-side disruption caused by the Ukraine-Russia crisis, IDC still forecast the product engineering and operational technology engineering services and operational technology services markets to grow twice as fast as the IT and business services markets.
Overall, while inflation may artificially boost market size in the short term, this is largely offset by demand instability and rising labour costs.
“IDC services analysts have looked at short-term impacts, such as pent-up demand and the Ukraine-Russia conflict, as well as more structural ones, such as the adoption of public cloud, the talent crunch, inflation, data security/residency/sovereignty, and more,” said Xiao-Fei Zhang, Program Director – IDC Worldwide Services Tracker program.
“Based on our analysis, we adjusted our outlook accordingly at the market level,” added Zhang.
However, Zhang viewed that at the individual vendor level, services providers will need to brace for more volatility. Due to the impact of the pandemic, enterprise buyers face another black swan event in 2022, which will accelerate large global trends, such as remaking the global supply chain and value chain and exacerbating the talent crunch by changing demographics.
“We should expect more of ‘the unexpected’ in the years to come. During the last two years, the services providers who succeeded were the ones who have proven to be resilient partners in helping their clients thrive in change. This has always been the constant force to drive growth in the services market,” concluded Zhang.