A forecast return to relative economic stability has meant IDC is keeping its forecast for Western European IT services unchanged for this year, with demand set to pick up in the Nordics first.
IDC’s second quarterly revision for 2010 of its Western European IT services forecasts estimates that total end-user spending on external IT services in 2010 will be close to US$204bn in Western Europe, and that demand growth will pick up from 2011 to reach $232bn in 2014.
IDC revises its forecasts each quarter in the light of economic and industry trends, and its forecasts are in constant currency, thus excluding the effects of currency movements.
Demand in the Germanic and Nordic regions is expected to pick up first, while growth in France and the UK will be slower. Demand in the UK is subject to more uncertainty, as new government initiatives to be announced in the autumn could affect not only direct government spending, but also the overall economy in a manner that would lead to reduced IT services spending in the short term.
IT services defined
IT services include project-oriented services (such as IT consulting, systems integration and custom application development), outsourcing services (such as data centre outsourcing and application management), and support services (such as IT training and hardware and software deployment). IT services exclude business consulting and business-process outsourcing (BPO).
“The good news is that the economy seems broadly stable compared with 2009, despite the sovereign debt issue, and enterprises seem to be in a healthier state than last year,” said Douglas Hayward, research manager for European Services at IDC in London.
“With IT services spend dependent in part on enterprise and consumer confidence, and of course on levels of cash flow in enterprises and government bodies, we see a short-term period of relative stability where things don’t get much better but neither do they get much worse.
“We have kept our forecast for the European IT services market essentially unchanged for the third quarter in a row, as far as the big picture goes, only making relatively small adjustments to the UK and Greece,” Hayward said.
IDC surveys of end users earlier this year showed spend confidence starting to return, with growing interest in outsourcing and cloud computing, for example, but the reality at the coalface is that IT services vendors typically reported falling IT services revenues in Q1 2010 and IDC expects this also to be the case for Q2 2010.
“We expect that demand and vendor revenues will revive in Q3 and Q4 of 2010, so that IT services spend for the full year will end at same level as 2009,” said Hayward.
A return to demand
“We have not been expecting a return to demand growth until the second half of this year, and there are many signs that we were right not to do so. When looking at services contract signings in the first half of the year, it is clear that the situation is improving, but it takes six to nine months before revenue starts being booked in large scale by the vendors, so we believe a conservative forecast for 2010 is fully justified. We do not see customers enthusiastically opening their wallets yet,” Hayward said.
All major countries in Europe face public-sector debt issues that are likely to lead to cuts in IT spending in the public sector in 2011, but in the longer run IDC expects that the possible efficiency gains and cost savings promised through outsourcing will lead to increased outsourcing demand in the European public sector.
This is especially the case where vendors offer new payment models that allow the customer to spread its investments over the full contract length. Nevertheless, in the near future, IDC expects that governments will need to make immediate savings and will chose the “easy option” of cutting down IT spend instead of transforming IT spend.