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The outlook for IT spending is set to decline as the US-China trade dispute and Brexit uncertainty influence the amount of IT budget that CIOs can spend, Forrester has warned.
In the analyst firm’s latest Global tech market outlook for 2020 to 2021 report, Forrester principal analyst Andrew Bartels warned CIOs to get ready to trim back their new project portfolios for the next two years and start looking for ways to contain their other costs.
Bartels said in the report: “The slowdown in tech purchases by business and government is real and reflects the fact that business executives are generally reluctant to grow their tech budgets faster than the growth in their revenues.”
Referencing the UK’s exit from the European Union on 31 January, Bartels noted that prime minister Boris Johnson and the Conservative majority in Parliament will need to negotiate a transition agreement that still leaves many key issues to be negotiated. “Those continued uncertainties will depress UK economic growth,” he said.
Forrester expects tech purchasers to cut their budgets in response to these uncertainties, and forecast that the UK will experience a 1.4% decline in tech spending in 2020.
Forrester noted that tech market growth across Western Europe “was not too bad in 2019”, with the region’s constant currency growth of 4.5% actually higher than the global growth rate of 3.9%. But Bartels noted in the report that Brexit uncertainties will knock down the UK’s tech spending.
“That drop and the ripple effects of Brexit on other European countries will slow the region’s tech market growth to just 0.4% in 2020, with a modest recovery to 1.7% increases in 2021,” he said. “Low oil and commodity prices and weak developed economies will dampen tech demand in Eastern Europe, the Middle East and Africa in 2020 and especially 2021.”
Overall, Forrester forecast that by 2021, the global tech market will grow by 3%. The analyst firm reported that software will be the only category to see strong demand. Spending on cloud applications and platforms will still grow at double-digit rates, helping to make software the best-performing tech category. But demand for major new on-premise software or hardware systems will weaken as companies and their CIOs become cautious, it said.
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Bartels urged CIOs to start looking at where they can remove costs in IT. CIOs have traditionally offloaded workloads to the cloud to reduce the cost of running and operating on-premise IT, which has driven the growth of Amazon Web Services, Microsoft Azure and Google Cloud Platform.
Any shift in buying patterns as budgets get squeezed may lead to rising prices for public cloud services, driving up the cost of running workloads that have been migrated to the public cloud.
The Forrester report also recommended that CIOs should consider assessing how they can avoid software-as-a-service (SaaS) lock-ins, which would prevent them from swapping out an incumbent for a more competitive SaaS provider.
Among the areas most likely to be impacted by IT budget cuts is new projects. According to Forrester, this is because it represents the portion of the tech budget that can most easily flex up or down.
In the report, Bartels added: “When the business outlook is positive, CIOs can, and often do, increase their new project spending by expanding their project portfolio. But when the business outlook darkens, CIOs shrink their new project spending by delaying or deferring some of the items on their project priority list.”