15 Apr 2022

IDC Forecasts Steady Growth Over the Next Five Years for the IT and Business Services Markets

NEEDHAM, Mass. April 15, 2022 – Worldwide IT and business services revenue is expected to grow by 5.6% (in constant currency) in 2022, according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker. In nominal dollar denominated revenue based on today's exchange rate, the market will grow by 4.2% year over year, due to FX fluctuation.

The 2022 market growth represents an increase of 160 basis points from IDC's October 2021 forecast. The improved market view reflects robust 2021 bookings and pipelines by several large services providers, an improved economic outlook (compared to the previous forecast cycle), and inflationary impact on the services market, offset slightly 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 by 5.3% in 2022, up 150 basis points from the October 2021 forecast (in constant currency.) This is attributed 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.

Our 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 outlook for the U.S. market has also been also adjusted up by 160 and 80 basis points for 2022 and 2023, respectively. The adjustments were made across all markets. The improved economic outlook and vendors' strong bookings and pipelines in the world's largest services market partially drove this upward change, while the rest can be attributed to our inflation impact assumptions, especially in project-oriented markets. The long-term U.S. growth prospect remains largely unchanged.

Our 2022 growth forecast for EMEA (Europe, Middle East, and Africa) was raised by more than 220 basis points.

While Europe is the most impacted region by the ongoing Ukraine/Russia conflict, we remain sanguine on the region. IDC has reduced the Central & Eastern Europe (CEE) forecast significantly due to the conflict in the Ukraine. We expect the CEE services market to grow only by 5.5% and 7.3% in 2022 and 2023, respectively, down from our previous forecast of 9-10% growth. Russian and Ukraine markets will shrink significantly this year.

Western Europe's near-term growth forecast has been adjusted up: 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 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. Based on IDC's March assumptions about the crisis, which assumed a more neutral scenario (limited military escalation and disruption to the global supply chain), IDC believes that the crisis will dampen Western Europe's mid-term market growth but will be offset by other drivers. Of course, because the situation is ever evolving, its actual impact to the EU economy may be more severe than expected.

The Middle East & Africa's (MEA) growth prospects for 2022 and 2023 have also been raised by 250 and 100 basis points, respectively. 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 hyperscaler buildouts, we are more bullish on the MEA market. We also believe that the negative impact of the Ukraine/Russia crisis on the region will be only marginal.

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 was 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.

The forecast for China's market growth has been 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, which 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, we still forecast the product engineering & operational technology engineering services and operational technology services markets to grow twice as fast as IT and business markets.

Overall, while inflation may artificially boost market size in the short-term, this is largely offset by demand instability and rising labor costs.

"In this forecast cycle, 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 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."

"However, at the individual vendor level, services providers will need to brace for more volatility," Zhang continued. "On the heels of a global 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 helping their clients thrive in change. This has always been the constant force to drive growth in the services market."

About IDC Trackers

IDC Tracker products provide accurate and timely market size, vendor share, and forecasts for hundreds of technology markets from more than 100 countries around the globe. Using proprietary tools and research processes, IDC's Trackers are updated on a semiannual, quarterly, and monthly basis. Tracker results are delivered to clients in user-friendly Excel deliverables and on-line query tools.

For more information about IDC's Worldwide Semiannual Services Tracker, please contact Kathy Nagamine at 650-350-6423 or knagamine@idc.com.

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About IDC

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, IT benchmarking and sourcing, 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.



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