The IDC Worldwide Semiannual Services Tracker forecasts global 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. 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 mid- to long-term outlook for the market has also 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.
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.
Outlook in Asia-Pacific
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."
Xiao-Fei Zhang
