12 Apr 2021
IDC Boosts Its Forecast for the Worldwide Services Market Due to a Soft Landing in 2020 and a Strong Return to Growth in 2021
NEEDHAM, Mass. April 12, 2021 – Worldwide IT and business services revenue declined 1.16% year over year (in constant currency) in 2020, according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker. In nominal dollar denominated revenue based on today's exchange rate, the decline was 1.53%, due to FX. Despite bearing the full brunt of the pandemic, services revenue managed to stay above $1 trillion last year and the overall contraction in 2020 proved to be milder than forecast in September 2020.
IDC now expects the services market to have a strong rebound in 2021. The current forecast projects year-over-year growth in both 2021 and 2022 to be around 4%. This is a notable improvement over the September 2020 forecast, which projected the market to grow close to 2% in 2021 and 3.2% in 2022. The improved outlook is buoyed by better-than-expected revenue in 2020, especially in Q3 and Q4, a brighter economic outlook and growing business confidence, and the pandemic's long-lasting impact on IT and business services spending – the new normal.
The demand-side shock was indeed severe in 2020. Most top vendors saw revenue growth slow or decline last year, particularly in Q2 and Q3. However, in aggregate, the 2020 market contraction was softer than expected and overall better than the decline in global GDP.
With recent economic forecasts pointing to a faster and more robust recovery, services spending is expected to improve in developed markets. Additionally, services spending in some regions or countries, especially Europe, the Middle East, and Africa (EMEA) and Asia/Pacific, is being driven by large government digital initiatives coupled with businesses' growing trust and confidence in their governments' handling of the pandemic and economy.
Finally, most vendors believe that the crisis has tipped organizations and consumers over to the digital world – a net positive in the long run. In this forecast, IDC believes that the magnitude and timing of this transition have been slightly larger and sooner than anticipated.
In the Americas, the services market is forecast to grow by more than 2.5% in 2021, a notable improvement from the 1.4% growth forecast in September 2020. Much of the improvement is attributed to growth in the North America services market.
In the U.S. market, 2020 revenue was better than expected and the near-term GDP growth projection has improved. As a result, the U.S. market is forecast to grow by more than 2.4% this year with U.S. business consulting growth adjusted significantly upwards to reflect faster than expected economic recovery. Similarly, managed services contracted less severely last year, driven by continued cloud adoption. This produced some adjustments in the near-term and mid-term growth outlook, as well as the forecast for managed cloud services (private/hybrid cloud).
In Canada, the forecast was buoyed by an improved economic outlook, the rapid shift to digital transformation, as well as the government stimulus.
In Latin America, overall growth did not change significantly from the previous forecast. IDC's outlook for 2021 remains pessimistic as the region's economic recovery is likely to be in 2022. However, Latin America overall remains a high growth region for business and IT services.
In Europe, actual 2020 revenues were better than expected. Due to government stimulus and vaccination progress, Europe's recent GDP forecasts point to a faster, stronger, and more unified recovery, unlike the post-2008 years. This will boost business confidence and, compounded by the need for digital transformation, enable growth to bounce back to 3+% across markets in both Western and Central & Eastern Europe (CEE). CEE will see faster growth, but the overall market size remains much smaller. Like the U.S., Europe's managed cloud services penetration rate has also been adjusted upward to reflect the region's fast cloud adoption.
The Middle East and Africa's (MEA) near-term growth rate has also been adjusted upward in the new forecast. The larger markets in the region expect slightly improved economic growth, more government initiatives, and more incentives for digital transformation (i.e., hybrid cloud) from the private sector. However, smaller economies are likely to see a slower recovery, resulting in a more cautious outlook for their short-term growth prospects.
In Asia/Pacific, overall growth remains higher than the other global regions. The near- to mid-term growth prospects have been adjusted slightly upward, reflecting the improved economic outlook for the more mature markets. For example, the near-term and mid-term growth forecast for Japan and Australia is more optimistic due to a stronger than expected 2021 recovery.
China's 2021 and 2022 growth rates were increased by around 250 and 120 basepoints, respectively, largely driven by pent-up demand from last year and large government funded digital initiatives as part of the large stimulus spending package.
As for the emerging markets in the region, while they will still enjoy faster growth, the long-term growth prospects are still shy of pre-pandemic levels. The September forecast largely captured the market dynamics in these countries and the outlook remains largely unchanged.
"While 2020 has been a challenging year for services vendors both from a supply and demand side, the overall services market remained resilient and major vendors are reporting stronger bookings and pipelines," said Xiao-Fei Zhang, program director, Global Services Markets and Trends. "Looking forward, while the recovery will be uneven between mature and emerging markets, and the threat of inflation still lurks, a strong recovery this and next year is still expected."
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International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. With more than 1,100 analysts worldwide, IDC offers global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries. IDC's analysis and insight helps IT professionals, business executives, and the investment community to make fact-based technology decisions and to achieve their key business objectives. Founded in 1964, IDC is a wholly-owned subsidiary of International Data Group (IDG), the world's leading tech media, data and marketing services company. To learn more about IDC, please visit www.idc.com. Follow IDC on Twitter at @IDC and LinkedIn. Subscribe to the IDC Blog for industry news and insights: http://bit.ly/IDCBlog_Subscribe.
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