FRAMINGHAM, Mass. — (BUSINESS WIRE) — June 25, 2020 — In April, International Data Corporation ( IDC) forecast worldwide IT services and business services revenue would decline 1.1% year over year in 2020 due to the impact of the COVID-19 pandemic. In a new update to the Worldwide Semiannual Services Tracker, the market is now forecast to shrink further, declining 2.8% this year. However, the 2021 growth rate has improved slightly from 1% to 1.4%, reflecting IDC's optimism for a market rebound.

The newest forecast is based on the Economist Intelligence Unit's May forecast for worldwide GDP in 2020, which will likely contract by around 4.4%, more than twice as much as the March forecast. After almost four months of shutdowns across most developed markets, the economic downturn in the first half of 2020 will be so severe that even a robust recovery in the next six months will not offset it.

IDC's view on the supply side remains largely intact. Even as the major delivery countries (India, the Philippines, Czech Republic, etc.) were shutting down, services providers adapted quickly to working from home at scale and hatched contingency security plans. Buyers also have largely been quick to sign off on these plans. The transition has been a predominantly smooth one without major disruptions. Most providers see the COVID-19 crisis tipping organizations and consumers over to the digital world – a net positive in the long run.

The downward adjustment in market size was largely attributed to a bigger demand-side shock. The scale and duration of the lockdowns are better reflected in these updated economic metrics. All major markets, according to May's GDP forecast, are suffering greater economic slowdowns or steeper declines compared to projections made in March.

The Americas services markets are now forecast to decline 2.5% year over year in 2020, compared to the March forecast of nearly flat growth. Mid- and-long term prospects remain unchanged and the region is expected to return to growth of 2% in 2021 and more than 3% in subsequent years. In the near term, the economic outlook for Canada, Latin America, and the USA have all worsened. The US unemployment rate rose and Q1 GDP growth was particularly lackluster considering the shutdowns affected just one month in the quarter (March). We are seeing buyers pulling back or deferring projects (IT and business) to save cash. As a result, IDC lowered the US growth forecast to -2.7% in 2020. The project-oriented markets, particularly business consulting, bore the brunt as large US consultancies have already announced workforce reductions worldwide. IDC also tempered the 2020 outlook for managed services by roughly 1%, now down 1.6%. The outlook for the support services market is unchanged and remains at -1.0% with growth in hardware and software support offset by sharp declines in training and education. We still believe that outsourcing and support services are driven more by structural market forces than the demand shock. Overall, except for business consulting, all US foundation markets are forecast to outpace projected 2020 GDP growth.

Services markets in Canada also saw a sharper decline in 2020 and weaker recovery is expected across most foundation markets in the coming years, reflecting the gloomier economic outlook as the shutdown drags on. Latin America will continue to grow but will slump to less than 2% for 2020 with the outlook remaining unchanged from the March forecast.

IDC has also updated its forecasts moderately in other regions due to changing economic outlooks. Western Europe will decline 5.2% year over year in 2020 moved downward by almost one percentage point from the March forecast. The worsening pandemic situation and subsequent longer-than-expected shutdowns will inevitably impact short-term revenue. However, as we are now less uncertain about the future and more confident of the path to recovery, the mid- to-long-term growth prospect was adjusted by increasing 2021 and 2022 growth rates by 1.5—2.0 percentage points per year to -1.8% in 2021 and +2% in 2022.

Similarly, Central & Eastern Europe's 2020 short-term outlook was lowered while the mid- and long-term growth improved. This was largely due to changing conditions in Russia related to the pandemic and oil prices, and the availability of additional market data in smaller markets, such as the Baltics and central Asia.

The Middle East & Africa market will contract by more than 5% in 2020 as major markets in the region are also flanked by shutdowns and the collapse in oil prices. We are still optimistic about a quick recovery and expect budgets and spending to return.

In Asia/Pacific, a few key markets declined further since March, including Japan, Australia, and India, and the forecast was updated to reflect this. Japan will contract this year by 2.8% in 2020, revised downward by more than 1 percentage point with more economic metrics, such as weaker consumer spending in April and May, pointing to a weaker economy. We still expect the China market to deliver growth of 2.7% for 2020. Other major markets (Australia, India, South Korea, etc.) are slowing down dramatically in lieu of worsening economies. Overall, the Asia/Pacific region will slow to just 1.1% growth in 2020, revised down from 1.9% in the March forecast, but will likely see a faster recovery in 2021 and beyond.

"Over the last few months of shutdowns around the world, services providers have largely shifted clients' core IT and business operations to 'work from home' environments relatively overnight without major hiccups," said Lisa Nagamine, research manager with IDC's Worldwide Semiannual Services Tracker. "This further demonstrates how adaptive and resilient vendors and buyers can be in the 'digital age'."

"We will continue to see the services market growth outpace GDP growth, even during a crisis like this," said Xiao-Fei Zhang, program director, Global Services Markets and Trends. "The pandemic is clamping down on discretionary spending, and puts the brake on many projects for now, but this will be somewhat cushioned by managed services and support services contracts that support core operations of large enterprises and government agencies."

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 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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Lisa Nagamine
lnagamine@idc.com
310-702-2528

Xiao-Fei Zhang
xzhang@idc.com
508-988-6913

Michael Shirer
press@idc.com
508-935-4200