A decade of market recession?

Could the UK SITS (software and IT services) market be heading for a decade of recession? That’s a distinct possibility given TechMarketView’s latest forecasts, published today.

With the deepening economic crisis in Europe affecting markets worldwide, and with downbeat UK GDP growth forecasts, we have had to take an even more pessimistic (we would say realistic) view of the prospects for the UK SITS market.

According to our estimates, the UK SITS market shrank by almost 3% last year in real terms (i.e. taking into account CPI inflation), the fourth year of decline. We see the pain easing over coming years, but we do not expect the UK SITS market to grow again in real terms before 2016. Indeed, it would take just two further years of decline to mark a decade of recession!

These forecasts reinforce our view that the UK SITS market will grow slower than the economy for the foreseeable future—indeed it is hard to envision a set of conditions when it would once again grow faster than GDP! It’s not just the financial crisis which is constraining growth. It is also the inexorable march of disruptive technology trends, such as the consumerisation of enterprise IT, BYOT (bring your own technology), mobile internet, social media, ‘big data’, offshoring (still!) and of course cloud computing.

The key characteristic they have in common is that they are all designed to reduce the cost of computing—in other words, they are all deflationary. The issue is not whether or not demand for SITS is increasing (or indeed IT in general, but hardware pricing is deflating even faster!). The issue is whether any increase in demand is sufficient to mitigate, if not outweigh, price deflation, especially given the now enduring customer sentiment of ‘more for less’ (or indeed ‘same for even less’).

Suppose you assume that price deflation pressure is only 10% a year (and that is surely low-balling it). By the time you add in the effects of inflation, we would need at least a 12% increase in demand just to keep the UK IT market flat. Possible? Maybe. Likely? Probably not. Perhaps the UK SITS market is doomed to remain in recession—full stop!

Eligible TechMarketView subscription service clients can download the UK SITS Market Trends & Forecasts – 2012 report from our website right now. Everyone else should contact Deborah Seth with a note explaining why you are not yet a client!

Posted by HotViews Editor at '08:45'