No-deal Brexit could drive down global tech market growth, report warns

Research suggests that a slowing global economy, trade wars and other political fiascos will contribute to a decline in tech spending

World economy

Analyst firm Forrester has released research that suggests a no-deal Brexit will be hugely detrimental to growth in the UK's tech sector.

And the ramifications of Brexit, alongside other economic and political pressuress, will stymie tech growth in markets across the globe, though the US looks liekly to weather the storm. 

2017 and the first half 2018 saw a "stronger-than-expected" period of growth but the global economy, particularly in Europe and China, is weakening thanks to trade frictions, erratic oil prices and the potential for a very messy Brexit.

While the US continues to prosper, the economies of the rest of the world are slowing which is having a knock-on effect on the global tech market.

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Findings show that the global tech market growth will slow to 4.5% in 2019 and will continue to crawl in 2020 at a predicted rate of 3.8%, down from 5% in 2018.

"The positive forces behind increased tech spending still persist; these forces include rising adoption of cloud, new analytical technologies like artificial intelligence, the need for firms to invest in business technologies to help them win, serve, and retain customers, and a revival of spending on back-office technologies," read the report, the lead author of which is Andrew Bartels, principal analyst at Forrester. "But weaker economic growth, slowing revenue, and squeezed profits will offset these positives."

The report details some characteristics of the period of economic slowdown. One of the most noteworthy of these is the spending on innovations such as artificial intelligence (AI), blockchain and others will have little-to-no effect on market growth.

For all the hype and excitement in the fields, the spending on such innovations is too low to make a significant dent in market growth.

"We think that firms will primarily offer clients AI as embedded functions in existing commercial software products, with little or no increase in prices and thus in overall tech spending," read the report.

Cloud migration and transformation will be key in propping up market growth, according to the report. Specifically, software-as-a-service (SaaS) has gained huge popularity and widespread adoption in most major markets. This means as spending continues to increase on cloud and thus, the tech sector, market growth will climb.

The geopolitical landscape looks bleak and the nations that aren't embattled in political fiascos or trade wars are still suffering too. Italy is forecast to enter its third recession in ten years, the US-China trade war is hurting the latter, a country fighting heavy debt and an increasingly authoritarian government.

Brexit is also likely to have an impact on the situation too. A hard Brexit will strike a blow to the UK's economy but will also have a considerable ripple effect on the surrounding nations. France and Germany are already seeing signs of domestic economic slowdown and this will only accelerate with a hard Brexit that does no-one any favours.

Japan's economy is also sluggish, while Russia, Turkey, Brazil and the Saudis have economies that all show signs of toppling into recession.

The US, on the other hand, is likely to see a nice period of growth over the next few years. The dollar is expected to strengthen this year against other currencies. It has the fastest tech growth in 2019 at a rate of 6.3% but will drop to 5.6% in 2020 as the dollar eases, a figure that still beats the struggling Europeans.

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"As we look at the tech market outlook for the next two years, we see more things that could go wrong than things that could turn out better than our expectations," the report reads.

The US consumer could lose confidence in spending through higher interest rates and a "cratering stock market". The ongoing US-China trade war could also hurt global economic growth, slowing the tech sector further as a result.

The fear around a no-deal Brexit is the UK could leave the EU with no arrangements for trade, leading to uncertain and unpredictable spending and therefore market growth.

"The outcome of the new referendum is unpredictable and could result in another majority vote for the UK to leave the EU, hardening the divide.

"The result of the latter would almost certainly be a recession that would touch Britain's trading partners in Europe and cause Europe's tech market to decline in 2019 and/or 2020."

A no-deal Brexit is frightening British enterprises. According to a poll commissioned by techUK and carried out by Ipsos MORI, only one in ten businesses favour a no-deal Brexit and the majority SMBs have yet to take any precautionary actions at all.

There is also concern about how data will flow between countries in the immediate days and weeks following the UK's departure from the European Union.

Because the UK will leave the European Economic Area (EEA) which facilitates the free-flow of data between EU member states, the UK will become, at least temporarily, a third-party country until a data adequacy agreement is reached.

Personal information has been able to flow freely between the UK and EU countries to date because all nations have adhered to the same standards. The EU also allows the free-flow of data between member states and non-EU countries through data adequacy decisions.

But any such arrangements will take time to conclude and cannot logistically be in place by March 2019, the legislative date of withdrawal, unless Article 50 is extended or suspended. This means businesses will need to consider their circumstances and adapt their operations accordingly.

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It could also severely hamper the delivery of public services, including many NHS Trusts and their suppliers, which store data on often-EEA-based AWS servers.

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