Worldwide IT and business services revenue is expected to grow (in constant currency) by 5.7% this year and 5.2% in 2023. This is outlined in IDC’s Worldwide Semiannual Services Tracker. In nominal dollar-denominated revenue based on today's exchange rate, the market will grow by 2% this year, due to currency headwinds.
The 2022 market growth represents a slight increase of 12 basis points from IDC's April 2022 forecast. 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 maintained its outlook for the worldwide services market even against the backdrop of a global recession. Worldwide GDP growth has worsened since March/April and is now expected to grow by only 2.7% this year and 2.4% in 2023, based on August's figures.
After adjusting certain geographic and market segments accordingly, IDC remains cautiously optimistic based on stronger-than-expected reported results from vendors in the first two quarters of this year (including revenues, bookings, and pipelines) and larger residual effects from the pandemic on the IT industry (i.e., hybrid workplace, cloud adoption, etc.).
For example, in the first half of 2022, the median year-over-year growth in constant currency for the top 20 IT and business services vendors was more than 9% (excluding product and other services revenues, such as engineering services). This was coupled with healthy bookings and pipelines. In addition, services firms have not yet lowered their revenue guidance significantly.
"While economic conditions for major economies around the world worsened in the last few months, given the services vendors' strong revenues, bookings, and other leading indicators, the worldwide services market will likely continue on its current growth trajectory," said Xiao-Fei Zhang, program director, IDC Worldwide Services Tracker program.
"Also, the real threat to vendors may be from the supply side: with book-to-bill ratios above 1.1 or 1.15, attrition 25% plus, and utilisation rate pushing close to 90%, something has to give. A cooler economy may actually help vendors to convert bookings to revenue faster by easing the labour market."
Xiao-Fei Zhang
IDC has adjusted its short-term growth rate for professional services slightly downward: during an economic downturn, discretionary spending will suffer more as some projects will be delayed or put off indefinitely.
But this will be partially offset by the potential upside on the supply side. The negative impact will be felt mostly in business consulting: IDC lowered its business consulting market growth rates by 100 and 40 basis points in 2022 and 2023, respectively. Poised to grow between 6% and 8% in the coming years, business consulting will outperform the overall economy by a long stretch.
The recessionary impact on recurring revenues is also expected to be minimum to marginal. IDC has raised the growth rate for managed services by 40 to 60 basis points each year as managed services will be more shielded from economic downturns because these are mission-critical to buyers. Pricing also helps as providers are increasingly able to pass on wage increases to customers in large outsourcing contracts.
Within managed services, apps remain the key growth driver, as the pandemic added billions of digital users across the globe almost overnight, exhausting the available software development talent pool worldwide.
IDC has increased its five-year CAGR (in constant currency) for application management from 4.5% to 5.2%. The workplace and infrastructure-related outsourcing market outlooks have also been adjusted moderately upward as cloud and hybrid workplace continue to drive strong growth, albeit these are relatively slow-growth markets, to begin with.
Similarly, the growth rate for support services was adjusted upward only slightly in the short term as support services revenues depend on multi-year contracts and are much more insulated from sharp hardware shipment declines.
What’s in store for APAC
The growth outlook for Asia/Pacific was adjusted downward by roughly 10 basis points each year for the next four years. The region is forecast to grow at around 5.5% each year. Within the region, the growth rates for both China and India have been lowered.
As China's economy decelerated this year, the services market saw its 2022 growth rate adjusted downward by 130 basis points to just 5.2%, and the five-year CAGR declined by more than 90 basis points to 6.4%. India’s services market growth was also lowered marginally under recessionary threats with the five-year CAGR reduced from 8.9% to 8.2%.
The outlook is more favourable for the rest of the region, with faster-than-expected recoveries in mature markets like Australia and New Zealand, and more vibrant emerging economies in Southeast Asia.
