By Emmanuel Oluebube, Correspondent UK

Worldwide IT and business services revenue declined 1.9 per cent year over year (in constant currency) during the first half of 2020 (1H20) according to the International Data Corporation (IDC) Worldwide Semiannual Services Tracker.

Derailed by the pandemic in the first quarter and then absorbing the full impact of the shutdowns during the second quarter, services revenue fell below US$500 billion (in constant currency) in 1H20.

In nominal dollar denominated revenue based on today’s exchange rate, the decline was 3.7 per cent, due to the strengthening dollar.

IDC forecasts the market to continue to decline throughout the year. However, the near-term outlook is less pessimistic than a few months ago. The June market forecast update projected the market to decline 2.8 per cent for 2020. The current forecast tempers that to just a 2.3 per cent decline. The forecast growth rate for 2021 has also been increased by 500 basis points, from 1.4 per cent to 1.9 per cent, reflecting optimism for a quicker and stronger recovery.

IDC’s view on the supply side remains intact. Most services providers have helped their clients’ employees transition to working from home without major hiccups. As most providers expect to continue remote working throughout the year and even well into 2021, productivity and potential employee burnout remain a top challenge and concern for leadership. IDC believes that the short-term financial impact will be limited.

The demand-side shock was indeed severe and immediate. Most large global vendors, including top Indian services providers, saw their second quarter reported revenue growth reduced by at least a few percentage points from pre-COVID-19 levels.

However, overall confidence and outlook have improved. Some vendors are reporting strong bookings in the second quarter and more active pipelines despite declining revenues. Sales teams are adopting quickly to virtual B2B selling and taking advantage the expanded “mind-share” of senior business leaders (more time or freed up due to no travelling/commuting and more open-minded to new ideas and new ways of doing things, unlocked by the crisis). This has already contributed to large deal making in the third quarter. Most vendors believe that in the long run the crisis is a net-positive with the COVID-19 crisis tipping organizations and consumers over to the digital world.

From a regional perspective, IDC’s outlook for the US services market is slightly more pessimistic, but improved for several major international markets, including Europe and China.

In the Americas, the services market is forecast to contract 2.7 per cent in 2020, a slight improvement from the 2.3 per cent contraction in the June update. This is largely due to the US market where the foundation markets’ forecasts remain unchanged. The US business consulting market’s near-term growth was adjusted downward moderately because the market has been more challenged than previously expected and the full recovery is likely to take longer. Canada’s near-term growth rate has also been adjusted slightly upward due to an improved economic outlook. Latin America’s forecast was largely unchanged because a few foundation markets in the region, (i.e., workplace and network-related outsourcing) are more resilient than expected offset. The forecast for Europe received significant upward adjustments in this forecast update. While the Euro area GDP is still projected to shrink by more than 8 per cent this year, it is less severe than previously expected. Most European governments were able to contain the pandemic somewhat effectively and have shown great coordination and collaboration during the crisis (e.g., issuing a common Euro bond in July, which greatly improved business confidence in the region). The shutdowns and budget shortfalls will likely drive more cloud adoption and outsourcing/offshoring. Therefore, we are expecting faster recoveries in key services markets within the region.

The short-term growth rate for the Middle East & Africa (MEA) was also adjusted up slightly to less than a 3 per cent decline this year. While the pandemic and plummeting oil prices continue to wreak havoc in the economy, it is partially offset by the shutdown driven “need for digital” among local organizations.

In Asia/Pacific, Japan’s near-term and mid-term growth rates were adjusted slightly as a delayed recovery is expected while long-term growth prospects remain unchanged.

IDC adjusted the growth forecast for the rest of Asia/Pacific slightly downward, except for China, both short term and long term. While most Asia/Pacific markets managed the crisis better and have outpaced other regions in growth, not all of them have fared equally well in this pandemic. Therefore, we are slightly less optimistic about the magnitude and timing of the recovery.

China’s growth rate for this year has been adjusted upward by 125 basis points and is now forecast to grow nearly 4 per cent in 2020. Strong economic indicators in recent months all point to a robust rebound in the second half of this year. Coupling this with the “digital drive” brought about by the pandemic, as well as large government-funded digital initiatives (part of the large stimulus spending), China’s IT services market is expected to beat the previous guidance.

This makes Asia/Pacific (excluding Japan) and Latin America the only two regions that are still forecast to grow amidst the pandemic. But all regions are forecast to return to growth in 2021 and return to pre-COVID-19 levels over the next few years.

“Buyers’ budgets may still be down, but there is much more certainty now compared to a few months ago,” said programme director, Global Services Markets and Trends, Xiao-Fei Zhang. “Enterprises and government agencies are moving from a ‘do whatever to survive today’ mentality to the ‘if we do not go online, we will not survive tomorrow’ mentality. Decision makers are beginning to prioritize and reprioritize budget items accordingly and are willing to make tough calls again. This can drive digital spending in the coming years.”