Despite the Recession, IDC Predicts Growth in IT and Business Services

Worldwide IT and business services revenue is expected to grow in constant currency by 5.7 per cent this year and 5.2 per cent in 2023.

FREMONT, CA: Global IT and business services revenue is anticipated to increase this year by 5.7 per cent in constant currency and 5.2 per cent in 2023. IDC's Worldwide Semiannual Services Tracker describes this. The market will rise by two per cent this year, with nominal dollar-denominated revenue based on the current exchange rate, because of currency headwinds.

IDC's April 2022 prediction shows that the 2022 market growth reflects a tiny 12 basis point rise. The current prognosis calls for a 5.2 per cent five-year compound annual growth rate (CAGR), up from the previous prediction of a 4.9 per cent CAGR.

Despite the backdrop of a global recession, IDC has kept its outlook for the global services sector unchanged. Since March/April, the forecast for global GDP growth has gotten worse; it is now predicted to increase by 2.7 per cent this year and 2.4 per cent in 2023.

Based on stronger-than-expected vendor-reported results in the first two quarters of this year, including revenues, bookings, and pipelines and larger residual effects from the pandemic on the IT industry, IDC remains cautiously optimistic after appropriately adjusting certain geographic and market segments such as hybrid workplace, cloud adoption, etc.

For instance, the top 20 providers of IT and business services experienced median year-over-year growth in constant currency of more than nine per cent in the first half of 2022. excluding product and other services revenues, such as engineering services. Alongside this, there were strong bookings and pipelines. Additionally, service companies have not yet dramatically decreased their revenue guidance.

Although the majority of the world's main economies have seen their economic conditions deteriorate recently, the worldwide services market will probably continue to grow at its current rate, according to Xiao-Fei Zhang, programme director of IDC's Worldwide Services Tracker programme.

Xiao-Fei Zhang said that the real threat to vendors could be from the supply side with book-to-bill ratios above 1.1 or 1.15, attrition 25 per cent plus, and utilisation rate pushing close to 90 per cent, something has to give. A cooler economy may help vendors to convert bookings to revenue faster by easing the labour market.

IDC has somewhat reduced its short-term growth estimate for professional services since, in a recession, discretionary expenditure will suffer more because some projects will be postponed or shelved altogether.

But the possible supply-side gain will partially balance this. IDC reduced their market growth rates for business consulting by 100 and 40 basis points in 2022 and 2023, respectively, indicating that business consulting will be most affected negatively. The business consultancy will increase between six per cent and eight per cent in the upcoming years, outpacing the general economy by a wide margin.

Recurring revenue is likewise anticipated to experience minimal to moderate recessionary effects. As managed services are mission-critical to customers, IDC has increased the growth rate for these services by 40 to 60 basis points annually. This is because managed services will be more protected from economic downturns. Pricing is also beneficial since suppliers can increasingly pass on salary increases to clients in significant outsourcing contracts.

Since the pandemic added billions of new digital users worldwide practically overnight, depleting the global talent pool for software development, apps continue to be the main growth engine for managed services.