FRAMINGHAM, MA – Ravaged by the Covid-19 pandemic and comorbid economic malaise, the outlook has turned for the worldwide IT services market. This is the first time since the two world wars that the global economy has been disrupted both by demand and supply at such a scale, says International Data Corp.

Considering the impacts, IDC forecasts the worldwide services market will decline 1.1% in 2020 and grow just over 1% in 2021. The new forecast is based on the Economist Intelligence Unit's projection the real 2020 GDP will likely contract more than 2%, with a sharp decline in the first and second quarters, offset by recovery in the second half of the year.

Worldwide IT services and business services revenue grew 5% year-over-year in 2019. This represents the second consecutive year the market has accelerated since 2017 (from 4% growth in 2017 to 4.2% in 2018 and 5% in 2019), despite a cooling economy. (2019 world GDP slowed to just above 3%.) Large services vendors also reported stronger orders and book-to-bill ratios mostly above one, portending buyers' overall optimism, as well as their appetite for more digital transformation.

The impact on the supply side in 2020, at least for enterprise services, will be relatively small. Providers are quickly adopting working remotely and social distancing. The Covid-19 crisis will also tip organizations and consumers over to the online world sooner. As a result, it may improve productivity and open new opportunities.

The demand-side shock and uncertainty will have a bigger, deeper impact, says the research firm. Most regions will contract somewhat in 2020 but with different severities: overall, Asia/Pacific will continue to grow, while the Americas will contract slightly in 2020. Europe, the Middle East and Africa (EMEA) will be the most negatively impacted.

The Americas services market will contract 0.2% this year, down from the 5.2% growth experienced in 2019. IDC expects it to bounce back to growth in 2021 and eventually get to 3% or more. But the five-year CAGR will be considerably lower than previously forecast. This will be driven largely by the US market, which will remain flat in 2020 – tapering slightly from revenues of $485.6 billion in 2019 to $484.7 billion this year, or a 0.18% decline. US government and private sectors are putting off new projects to delay discretionary spending decisions due to market uncertainty. Project-oriented markets, such as consulting, custom application development, and systems integration are expected to suffer short-term revenue downfalls. Growth in this segment is expected to be 0.4% in 2020, down from last year's 7.4%. Managed services are expected to shrink slightly (0.7%), and support services will be flat. (Both were slower growing markets to begin with.)

Canada's 2020 market size is also expected to shrink. This is partially offset by slight growth in Latin America, although it represents a sharp deceleration from the region's 7.2% growth last year, amid the demand shock of local shutdowns, currency depreciation, and China's weak demand for commodities, among other factors.

The EMEA region is forecast to contract 4.3% in 2020, down from 2019's 4.4% growth, and will not likely return to positive territory until 2022. However, IDC expects different countries and sub-regions to recover at different rates.

With major Western European countries reporting high numbers of Covid-19 cases and fatalities and bracing themselves for a major recession from a prolonged shutdown, business leaders will focus primarily on preserving cash, which will impact almost all foundation markets in the near term. In Central and Eastern Europe, most markets are expected to contract similarly, ending two years of fast growth. Russia's market, which accounts for almost one third of the CEE market, however, is being severely impacted by the oil price shock and will decline 20% this year. The Middle East and Africa market will also shrink moderately largely due to falling oil prices.

Asia/Pacific will decelerate and is expected to grow 1.9% this year, down from 5.5% last year. The biggest impact will be felt in China. IDC expects the China services market to grow 2.4% in 2019, down from 7.6% in 2019, assuming a robust economic rebound in the second half of 2020, and government stimulus will offset the crisis earlier this year. For the rest of the region, the market is forecast to slow to 4.6% growth this year and 4.5% next year, down slightly from 5.9% last year. Compared to other regions, reports of confirmed cases and fatalities suggest the pandemic has been better contained in the region; therefore, the outlook for the region's growth potential is more optimistic.

"The Covid-19 pandemic is a demand shock on the services market worldwide," said Lisa Nagamine, research manager with IDC's Worldwide Semiannual Services Tracker, "but it will present different challenges, as well as opportunities, to different regions, industries, services offerings, as well as services providers."

"It will also have a profound long-term impact on our global supply chain," said Xiao-Fei Zhang, program director, Global Services Markets and Trends. "After the dust settles, services vendors may find their client portfolio changed, as well clients' priorities. They will need to realign their digital capabilities to the 'new norm.'"

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