IT services growth flat in Europe as firms freeze budgets

5 Mar 2009

Cash-strapped European organisations are putting IT projects on hold, leading to flat growth for the IT services market.

According to IDC, the GDP for western Europe fell from an expected 0.5pc to -2.5pc, with all European economies expected to be in economic recession during 2009.

With business sentiment at a record low, organisations’ non-discretionary spending will freeze, impacting on the approval of new IT projects.

As a result, IDC expects a decline of -1.4pc in project-oriented activities in 2009.

“Many projects will be delayed, reduced in scope, or chopped into smaller pieces, but so far we do not expect many projects to be cancelled,” said Laura Converso, research manager, IDC European Software and Services.

“’Despite the delay in IT decisions, we believe projects aimed at risk management, M&A integration and further cost efficiencies are more likely to be approved. The outlook for manpower-based IT services is tough for the year ahead, with an expected strong reduction in both volume and billing rates.

“Although we expect pricing pressure to be high in outsourcing as well, we believe this spending stream is less cyclical than systems integration and consulting, and we anticipate 4.4pc growth in this segment,” said Converso.

In 2009, cost-cutting will be the primary motivation to outsource. Despite this, customer demand for a better quality of service will remain high, as will the tendency to opt for providers with better offshore service provision.

IDC forecasts that most IT deploy and support services spending will be cut to the minimum, and only ‘keep the lights on’ spending will be maintained, resulting in a 2pc drop in the segment. In addition, hardware shipments and software licence rates are expected to decline sharply in Europe. IT training-related activity will see a reduction of -5pc in 2009, due to its dependence on the cycle.

Despite sharp declines in projects and support during 2009, we expect more crisis-resilient sectors such as outsourcing to sustain IT services market growth at 0.6pc.

In addition, IDC predicts a post-crisis outlook in which software as a service (SaaS) offerings, cloud platforms and global sourcing models emerge as the big winners.

By John Kennedy