Worldwide Services Market Momentum Derailed by COVID-19 Pandemic

Worldwide IT Services and Business Services revenue grew 5% year over year in 2019, according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker (growth in nominal dollar denominated revenue in today´s exchange rate was 2.4%, due to dollar´s appreciation in 2019), the company said.

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 bookings and book-to-bill ratios mostly above 1, portending buyers´ overall optimism, as well as their appetite for more digital transformation.

However, ravaged by the COVID-19 pandemic and comorbid economic malaise, the outlook has turned. 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.

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 that the real 2020 GDP will likely contract by more than 2%, with a sharp decline in Q1 and Q2 offset by recovery in the second half of the year.

The impact on the supply side, at least for enterprise services, will be relatively small. Providers are quickly adopting the “new norms” of 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 and deeper impact. 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.

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