IDC says worldwide IT and business services revenue declined 1.16% year-over-year (in constant currency) in 2020. 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.
According to the IDC Worldwide Semiannual Services Tracker 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.
Recap of 2020
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. IDC says services spending Asia/Pacific is driven by large government digital initiatives coupled with businesses' growing trust and confidence in their governments' handling of the pandemic and economy.
Most vendors believe that the crisis has tipped organizations and consumers over to the digital world – a net positive in the long run. IDC believes that the magnitude and timing of this transition have been slightly larger and sooner than anticipated.
APAC region 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."