IT budgets under pressure due to poor economic outlook

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CIOs should prepare for a 3.6 percent decline in IT spending this year, analyst Forrester has warned. But budgets are set to increase after 2024, as companies step up technology-driven projects and entrepreneurial ventures.

A number of external factors have contributed to the low growth in IT spending, according to Forrester. These include the Russia-Ukraine war, high inflation and the devaluation of the euro and pound against the US dollar.

The Forresters European Tech Market Forecast 2022 to 2027 report highlights the recession looming across Europe. The economies of Germany, Italy and Sweden are expected to see a decline in real gross domestic product (GDP) in 2023 as their economies enter a recession. Referencing the Bank of England’s forecast, Forrester said the UK economy was likely to be in a recession throughout 2023 and the first half of 2024. According to Forrester, UK GDP is likely to only recover gradually.

From the perspective of IT leaders, Forrester believes organizations will want to focus their technology spending on how to best achieve cost savings and operational efficiency.

Forrester’s report outlines a number of areas where government regulations in Europe can impact the progress of cloud adoption. For example, Forrester noted that in Ireland, balancing household and data center energy demand could lead to energy-intensive workloads running only during off-peak hours, when demand on the energy grid is typically lower.

Fears of a recession will lead many companies to reduce spending on IT services. However, Forrester projects that by 2024, 90 percent of technology spending growth will come from software and services as cloud adoption grows, with the remaining growth coming from computers and communications equipment.

Due to the pandemic, many organizations have made progress with digitization, streamlining tasks and using automation. In many ways, easy wins have been completed. To continue on their digitization roadmap, IT leaders are now being asked to tackle more complex digitization projects at a time when IT budgets are growing less rapidly.

The skills shortage is also set to impact how organizations tackle technological innovation, with Forrester warning that there aren’t enough European workers with science, technology, engineering and math (STEM) skills to go around. For example, he predicts that by 2030, the European chemical industry will have an 11% shortage in the technological skills it needs. Automotive manufacturing is another sector to be impacted as it draws heavily on software innovation, with Forrester citing a lack of major technology service providers in Europe forcing automaker Volkswagen to develop 60% of its vehicle software in-house .

The economic outlook after 2024 is set to improve, which will drive technological innovation. Forrester predicts that between 2024 and 2027, technology spending in Europe will be driven by high-value business assets, increased investments in cybersecurity, enterprise cloud usage, software and data-related IT services, and increases in private funding and on capital account.

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