Based on both, an optimistic and a pessimistic market scenario, PAC (teknowlogy Group) predicts that the software and IT services (SITS) market in Western Europe is likely to decline by between 3% and 12% in 2020. In response to the impact of the Covid-19 coronavirus pandemic, the research and analyst firm has significantly revised its outlook for investment in the market.

The optimistic market scenario

Under the “optimistic” market scenario, the expectation is that the peak of the virus can be successfully contained and managed within a three-month period, with lockdown measures eased before the end of that period. But in the “pessimistic” scenario, we have planned for a six-month period of peak management, meaning that most organisations would be unlikely to return to “business as usual” until the final quarter of 2020 or the first quarter of 2021.

Christophe Chalons, EVP and Chief Analyst, said: “We have based our expectations on a number of factors including the speed at which the virus is spreading across different regions, the extent and duration of the lockdown, and how successful government measures are proving to be. But the global nature of the economy means that no country in Europe can avoid the impact on international supply chains and customer demand.

This graphic shows the estimated growth rate of the software and ITServices market in Western Europe in 2020, based on a optimistic/pessimistic market scenario.

Pic.: The New Growth Scenarios for Software & IT Services Spending in Western Europe

Pessimistic market scenario: overall spending in software will decline up to 8.7%

PAC believes that some areas of the SITS market will suffer more than others in the coming quarters. While we currently expect overall spending in the software space to decline by between 0.1% (optimistic) and 8.7% (pessimistic), we believe that growth in spending on Software-as-a-Service (SaaS) solutions will remain strong, particularly in areas such as tools to support remote collaboration and communication.

In the IT services sector, we expect spending on consulting and systems integration to take a significant hit in the short term. As businesses postpone longer-term strategic initiatives and delivery teams supporting new platform implementation are disrupted by the lockdown. Outsourcing investment will remain more resilient, and the renewed focus on cost control may drive new opportunities in the medium term.

Different industry sectors – different impact

While telecoms and utilities companies continue to operate with relatively low levels of disruption, the transport and services industries will see the biggest impact on SITS spending in 2020. In the transport sector, European airlines have grounded the majority of their fleets, and a slump in revenue means a focus on cost control across all areas of the business – and IT is no exception. The services sector covers a broad mix of businesses, and clearly there are parts of this industry that are really suffering, such as hospitality, tourism and leisure. There is a high proportion of SMEs in this sector which are vulnerable to the short-term impact on cash flow. For many sub-segments, ongoing restrictions on travel and social gatherings will mean the recovery will take some time.

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