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Tech spending slowing along with world economy

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A slowing global economy combined with political uncertainty and trade woes are driving down the growth in technology spending.

Despite a modest, half-percentage up-tick by the International Monetary Fund in projected global economic growth over the next few years from 2.9% in 2019 to 3.4%  in 2021, tech spending is expected to slow. 

According to Forrester Research’s report, “Global Tech Market Outlook For 2020 To 2021”, spending is being driven downward by a combination of factors including the US-China trade war, Brexit, deflationary pressures, and a global growth trend line that, even though it is heading back up, has slowed since its most recent peak of 3.8% in 2017.

“With economic growth in the US, Europe, Asia Pacific, and elsewhere under threat … revenue growth will slow for most firms,” the report states. “In response, their executives will cut back on how much they will let tech purchases grow.”

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In 2018, a good year for tech spending overall, worldwide spending by businesses and governments on technology goods (hardware and software) and services grew by 5.1 percent. In 2019, that growth is expected to have decreased to 3.9 percent. By the end of 2020, Forrester predicts a further reduction of growth to just 2.8 percent. At 3.1 percent, the numbers for 2021 are predicted to start trending upwards again.

Software is a bright spot

The one bright spot in their forecast is software. Forrester expects spending on software and cloud computing to actually grow during the forecast period by 5% in 2020 and 5.1% in 2021. Still these numbers are significantly less than 2018’s 8.3% growth in software spending. 

“Any transformation of business operations or processes today involves the purchase of software,” the report states. “The investments that firms are making to replace on-premises software with cloud alternatives is another factor driving the growth in software.”

After surging in 2017 and 2018 because of better economic activity globally and tax incentives in the US, however, spending on computer and telecom equipment is expected to fall. 

Even with growth slowing, spending on technology goods and services by businesses and governments will be robust in the coming years, going from $3.09T in 2016 to $3.71T in 2021. 

US still tops the spending list 

As usual, the US outpaces the rest of the world by a massive margin. Anticipated US spending on technology for 2020, is $1.50T. At $289B, China, the next biggest spender, is expected to spend about a fifth of that amount. By percentage, Indonesia leads all other nations in projected spending growth at just under 8%. But it is only projected to spend a total of $18B on tech in 2020.

Reductions in spending growth will come from net new projects focused on growing the business. Run the business spending on back office and other operational efficiency technology is expected to remain relatively constant.

“The portion of the tech budget that can most easily flex up or down is new project spending,” the report states. “When the business outlook is positive, CIOs can and often do increase their new project spending by expanding their project portfolio. When the business outlook darkens, CIOs shrink their new project spending by delaying or deferring some of the items on their project priority list.”

It is important to note that these numbers are not predicted contractions of tech spending growth but simply reflect a slowdown in net-new spending. Companies and governments are still spending quite robustly. 

At $1.59T, software and telecom services are expected to be the largest two categories of spend in 2020. Tech consulting and systems integration (SI) spending are the next largest categories with a combined $1.19T. Spending on computer hardware and communications equipment make up the smallest piece of the 2020 tech spending pie at $8.0B.

“In tech spending, as in economics, good times seldom last,” the report concludes. “2018 turned out to be a very good year for the global tech market, and 2019 has been decent. it is certainly possible that 2020 and 2021 could turn out to be similarly positive for the global tech market … But it is always best for CIOs to plan for the worst, not count on the best.”

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Image: Getty Images/iStockphoto

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