NEEDHAM, Mass. April 12, 2023 – Worldwide IT and business services revenue is expected to grow (in constant currency) from $1.13 trillion in 2022 to $1.2 trillion in 2023, or 5.7% year-over-year growth, 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 3.5% due to exchange rates.
This represents an increase of 110 basis points from IDC’s previous forecast, which projected 2023 growth to be 4.6% and less than 5% in the following years (in constant currency). (The previous forecast was an off-cycle forecast issued in January 2023, which slightly reduced the October 2022 forecast due to looming recession threats.) The mid- to long-term outlook for the market has also been increased slightly – the five-year compound annual growth rate (CAGR) is now projected to be 5.2%, compared to the previous forecast of 4.9%.
IDC has raised the growth projection despite a weak economic outlook largely because of stronger than expected vendor performances across the 2022 finish line, growth indicators from adjacent markets, increased government funding, and, to some extent, inflation impacts (note that our projections are based on nominal growth).
The actual 2022 market growth was 6.7% (in constant currency), which was 87 basis points higher than forecast last year, although some softness appeared in reported bookings in Q4 2022. After strong bounce-backs in 2021 and 2022, we expect the market to cool down moderately to the 5.5%-5.7% range for the next five years, given the current economic conditions.
Most of the uplift in 2023 will be from managed services and project-oriented markets (professional services). Professional services’ (project-oriented market) short-term and long-term growth rates were adjusted upward from the previous forecast’s 5.5%-6% range to close to 7% (in constant currency). While we still believe the recession will have a direct impact on professional services, the strong growth in 2022, including business consulting, suggests that slowdowns in 2023 and 2024 will be milder than previously assumed, further helped by lower attrition rates, partial inflation adjusted price adjustments, as well as the need for companies and governments to digitize their operations.
Geographically, IDC has raised its outlook for the Asia/Pacific region and the United States while growth was adjusted downward mainly for Europe, the Middle East, and Africa (EMEA).
The US market’s actual growth in 2022 was adjusted up by almost 1.17 percentage points compared to the previous forecast and is now at 6.2%. The US software market’s forecasted growth and hardware installed base (for the near term) also remain strong. Therefore, 2023 and 2024 slowdowns are still expected, but they will be more gradual than previously believed. We now project the US market growth to ease to 5.8%, 5.7% and 5.2% in the next three years, respectively. US buyers’ needs to reduce costs, manage risks, meet new digital customer expectations, and access consulting talent anywhere will continue to drive growth. Our outlook improved across almost all US markets.
In the rest of the Americas, both Canada’s and Latin America’s overall growth were adjusted upward slightly. Canada’s five-year CAGR is poised at 3.8% and LATAM’s at 7.3%. However, Canada’s short-term growth was lowered to reflect a weaker economic outlook and the central bank’s interest hikes. But we expect a quick bounce back in 2025 and 2026. For LATAM, mid- to long-term growth was reduced, but 2022 and 2023 growth rates were raised slightly. This was partially because of the volatility of some local currencies and high inflation. In terms of real growth, after seeing robust growth in 2022, the region will slow down in the coming years given its economic challenges (i.e., Fed’s rate hikes). Overall, LATAM’s IT services market still greatly outpaces the region’s overall GDP growth.
In EMEA, we have reduced the near- to mid-term growth outlook for both Europe and the Middle East & Africa. 2023 growth rates are now 5.3% for Europe and 5% for MEA. Most large markets in Europe (i.e., Germany, UK, Italy, Spain, etc.) saw 2022 market growth that was stronger than expected, but we remain cautious about their near-term growth, given inflation and economic and geopolitical instability. Therefore, we expect Western Europe and Central and Eastern Europe markets to grow only by 5.4% and 4.3%, respectively. However, we were more bullish on certain large Eastern European markets such as Czech Republic, Poland, and Romania.
The growth outlook for Asia/Pacific was adjusted upward by around 100 basis points each year for the next four years, largely driven by an improved economic outlook and foreign capital inflow. The region is expected to grow by 6.1% and 6.4% in 2023 and 2024 with a more bullish outlook for key developed markets. Australia/New Zealand’s growth prospect was raised from 4%-5% to 7%+, driven by cloud adoption and technology lifecycle. Japan’s outlook also improved, now to 3.5%-4%.
Largely due to the government’s fast opening up in late 2022, China’s economic outlook improved markedly; therefore, China’s services market’s near-term growth is now projected to be around 8.5%, an increase from the previous forecast of 6.5%-7%.
Meanwhile, we have reduced the growth outlook slightly for the more vibrant emerging economies in Southeast Asia; however, given that they are hyper growth markets in the first place, clocking around 10% annual growth, the changes are relatively small. They remain the fastest growing markets globally.
“The expected slowdown in 2023 and 2024 can be felt in the recent cooling in hiring in global delivery hubs, such as India,” said Xiao-Fei Zhang, program director, IDC Worldwide Services Tracker. “Vendors’ reported attrition rates are also trending down. But the slowdown in demand will be more measured, and as we project certain markets may recover in 2025, a major talent crunch may return. The digital skill gap is structural and demographic. Vendors should remain laser focused on talent management and re-skilling during the market slow-down.”
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