January 3, 2013
The 2013 New Year has begun with the removal from the global tech market outlook of one risk, that of the US economy going over the fiscal cliff. On New Year's day, the US House of Representatives followed the lead of the US Senate and passed a bill that extends existing tax rates for households with $450,000 or less in income, extends unemployment insurance benefits for 2 million Americans, and renews tax credits for child care, college tuition, and renewable energy production, as well as delaying for two months the automatic spending cuts. While it also allowed Social Security payroll taxes to rise by 2 percentage points — thereby raising the tax burden on poor and middle class people — and did not increase the federal debt ceiling or address entitlement spending, the last-minute compromise does mean that the US tech market no longer has to worry, for now, about big increases in taxes and cuts in spending pushing the US economy into recession.
Forrester's latest tech market forecast published today — "Global Tech Market Outlook 2013 To 2014: US Will Lead 5.4% Growth In 2013 And 6.7% In 2014 In Local Currencies" — had assumed a compromise of this kind would happen. We also assumed that the European economies would remain weak in 2013 before starting to recover in 2014, that Japan's economy would slip back into no-growth territory, and that China's economy and those in other emerging markets would pick up after slowing in 2012. Against that economic backdrop, we think that the global tech market will do a bit better in 2013 than it did in 2012, and that it will do even better in 2014. Note that our definition of the global tech market in this report includes business and government purchases of computer equipment, communications equipment, software, IT consulting services, and IT outsourcing and hardware maintenance services but does not include purchases of telecommunications services.
Here are the key points in our forecast:
- Global tech market growth in US dollars will be weak at 3.3% in 2013. We think that overall the US dollar will remain strong against most currencies in 2013 due to the US economy outperforming other developed economies. That means global tech market growth measured in US dollars will be weaker at 3.3% in 2013 than the local currency growth rate of 5.4%. But the dollar should stabilize against other currencies by 2014, so dollar-denominated growth of 6.1% in 2014 will be about the same as local currency growth of 6.7%.
- The US tech market will lead with 7.5% growth in 2013, while Europe will lag with just 0.8% growth in local currencies. The US economy has many sources of strength, improving a turnaround in the housing sector, rising consumer confidence and consumer spending, and the potential for business investment to improve with avoidance of the fiscal cliff. While the strong dollar is hurting US exports and government spending is on a downward path, we think the US economy is likely to grow by 2% to 2.5% in 2013, which will lead to faster tech spending. In contrast, most of Europe is in a recession or close to one, so its tech market will barely grow.
- The Asia Pacific tech market will slow due to Japan, but Latin America and Eastern Europe, the Middle East, and Africa will improve. With Japan, the largest tech market in Asia Pacific, slipping back into recession, tech purchases in the region will slow to 4% growth, despite improvements in China and Australia. Latin America's tech market growth will improve to 6.4%, as Brazil's economy and tech purchases recover from a 2012 slump. Similarly, Russia, Saudi Arabia, South Africa, Turkey, and other countries east or south of Western Europe will experience a slight acceleration as some of their export markets start to improve.
- Software and IT outsourcing will do best in 2013; software and computer equipment will lead in 2014. In local currency terms, IT outsourcing and hardware maintenance will grow by 7.3%, as firms especially in Europe, Japan, and other struggling economies turn to outsourcing to save money. But elsewhere, software will be the growth story, with global growth of 6.5%. Communications equipment will be the weak sector, growing by just 2.4%. With most economies growing in 2014, computer equipment will join software as the fastest growing categories at 7.0% and 8.8%, with IT consulting and systems integration services close behind at 6.8%.
- Analytics, big data, mobility, collaboration, and cloud continue to drive tech buying, especially in developed markets. In software, business intelligence and analytics apps will big the hot products, along with smart process apps for collaborative business processes. The latter, which are primarily sold on a software-as-a-service basis, will help SaaS subscription revenues grow two to three times faster than combined license-and-maintenance software. In computer equipment, Apple tablets and Mac PCs will continue to take share from Windows PCs, with the introduction of Windows 8 PCs and tablets helping Microsoft to end the decline of 2012 but not bringing much growth until 2014.