As soon as the news of the Brexit vote in the UK came out, the Forrester team began revising our UK and European tech market forecast to take into account the economic implications and uncertainties of the voters’decision that the UK should leave the EU. Based on this revised analysis, we predict the UK tech market will grow by just 1% (pounds sterling) in 2016 with zero growth in 2017, compared with our prior forecast of 5% in both years.

Europe as a whole, will post no growth in 2016 (euros), and just 1% growth in 2017  two percentage points slower than our earlier forecast. With the plummeting pound and enervated euro, European tech market measured in US dollars will be similarly weak with 0.2% growth in 2016 and 1.1% in 2017.

The slowing of UK and European tech market growth results from multiple uncertainties created by the Brexit vote coming on top of what was already a weak and shaky European economy. As a result:

  • The UK economy, which had been outperforming most of the Eurozone countries, will take a hit. The Belgian, Dutch, French, German, Italian, and Swiss economies, which are growing by 1-1/2% or less, are vulnerable to declines, with Italy especially exposed due to a looming banking crisis.
  • Greece and Portugal are struggling once again, with threats of renewed recessions leading to declines in tech spending.
  • The only countries with decent economic growth and above average tech market growth are Ireland and Spain in the Eurozone, and Sweden, Poland, and other Central European countries outside it.

Within this overall bleak picture, there are a few pockets of strength. The most significant is cloud, both in the form of Software-as-a-Service (SaaS) and of cloud platform services (merged infrastructure-as-a-service and platform-as-a-service). SaaS subscription revenues for applications in euros will grow by 31% in 2016 and 23% in 2017. However, SaaS app revenues are mostly cannibalizing licensed software, with license revenues declining by 5% in 2016 as firms conserving cash in an uncertain environment cut back on capital investments. 

Similarly, European firms are utilizing cloud platform services from vendors like Amazon Web Services and Microsoft Azure that are opening data centers across Europe, instead of spending capital on new servers and storage devices. Consulting and systems integration services related to these cloud applications and cloud platforms will also do well, while traditional systems integration for licensed software and traditional outsourcing services will languish. 

To learn more on the UK and European tech market, read my latest report, “European Tech Market Outlook For 2016 To 2017”.