By most accounts, 2020 was set to be a pretty good year for U.S. gross domestic product and enterprise IT budgets. That was before the novel coronavirus, and the subsequent economic shutdown that is designed to blunt its spread and avoid overwhelming the nation’s health system. Analysts are now slashing their economic growth rates and enterprise technology spending estimates.
Previously, research firm IDC estimated that real GDP in the U.S. would reach 2.4%, but downshifted that to a “pessimistic scenario” of 1.4%. While IT spending dropped from an expected 5.1% year over year growth to a pessimistic scenario of 1.3%. The base scenario for GDP growth is now 2.0% and for IT spending 4.3%.
“The pessimistic scenario is not a worst-case scenario,” said Stephen Minton, vice president in IDC’s Customer Insights & Analysis group. “Things are moving so quickly that we need to constantly recalibrate our assumptions and expectations, but the pessimistic scenario reflects an IT market in which weaker economic growth translates into weaker business and consumer spending across all technologies over the next few quarters. Things could get worse, but hopefully not.”
Earlier this month, Forrester analyst Andrew Bartels wrote in this post that the U.S. and global technology market spend will slow to 2% this year.
“That assumes the U.S. and other major economies have declined in the first half of 2020 but manage to recover in the second half. There is also a 50% probability that U.S. and global tech markets will decline by 2% or more in 2020 if a full-fledged recession hits,” Bartels wrote.
Not all areas in technology will be impacted equally. Forrester expects there will increased demand for cloud infrastructure services, specialized software, communications equipment and telecom services for remote work and education.
However, Forrester expects computer and communications equipment to potentially decline 5% to 10%, while technology consulting and systems integration services spending could be flat to down 5%, should companies really belt-tighten.
“Software spending growth will slow to the 2% to 4% range in the best case and will post no growth in the worst case of a recession. Tech outsourcing and telecom services will hold up better, though contract revisions could cause spending to go down, as well,” stated Bartels.
S&P Global Ratings also predicts slowing IT spend. According to its update, Global IT Spending Set To Slide As Coronavirus Hits Hardware Sales, S&P Global economists cut their global GDP growth rate by more than half to 1% to 1.5% from 2.8%—in just two weeks.
“We believe the spread of the coronavirus will hurt enterprise and consumer IT spending across the globe with particularly bleak ramifications for the hardware and semiconductor segments. However, we expect some of the deferred spending to return gradually in the latter half of this year through heavy government stimulus in the U.S., China, and elsewhere,” wrote S&P Global Rating Analyst Andrew Chang.
S&P Global Ratings anticipates IT spending to decline 3% year over year, compared their prior estimate of 2% to 3% growth. S&P Global Ratings expects some of the biggest hits to hardware, with smartphone revenue falling to negative 9% from up to 2% growth, and PCs to negative 9% from a previous range of negative 3% to a positive 4% growth.
While enterprise technology budgets are being slashed, the need for business-technology isn’t going away. In fact, it’s accelerating as more knowledge workers shift to working from home, more remote collaboration and keeping legacy systems running and moving forward with digital transformation efforts.