European IT services suffer recessionary blues

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IDC has revised its European IT services forecast, blaming ongoing economic instability for the trend towards putting major projects on hold.

The analyst as once again downgraded its European IT services forecast for 2009 by one percentage point from 0.6 per cent to -0.6 per cent.

As a result, it is predicting in a forthcoming IDC study that the Western European IT services market will grow at a compound annual growth rate (CAGR) of 3.2 per cent over the next five years.

It said the economic crisis has created a natural break, at which many organisations were taking a step backwards: putting major decisions on hold while they revisit their services strategies.

“Companies are rethinking their top priorities, looking at projects that will provide an immediate return on investment, deferring large new IT projects, and turning to outsourcing to lower their cost structures,” said Laura Converso, IDC’s European software and services research manager.

And, although IDC said the latest available gross domestic product (GDP) data supported the view of a depressed, but stabilising economic environment, the uncertainty of its forecast means the firm is still forecasting declining growth.

Beyond 2009, the analyst is predicting slow recovery in 2010, with a modest 1.3 per cent growth. Specifically, IDC expects a decline of three per cent in project-oriented activities this year, as customers continue to delay decisions about new project work and add-ons to existing systems.

Despite this, it observed that businesses continue to invest in projects that help them tackle their key strategic areas such as customer retention, supply chain optimisation and mergers and acquisition (M&A) integration.

In outsourcing, it anticipates 4.2 per cent growth to 2013, with a minor 0.2 per cent reduction from previous estimates due to strong price pressure in the managed services segment. By contrast, demand for application outsourcing, and application consolidation and optimisation in particular remains strong, as organisations look at opportunities for short-term cost reduction.

It was support and training services that IDC believes will take the biggest hit, reducing its forecast by 4.8 per cent this year. IT training will decline by 10.4 per cent, as educational activities continue to be cancelled or replaced by on-the-job instruction during the downturn, IDC added.

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