May 9, 2017
Forrester has just published our updated forecast for the US tech market for 2017-2018 (see “US Tech Market Outlook For 2017 And 2018: Mostly Sunny, With Clouds And Chance Of Rain”). We are forecasting growth of 4.8% in 2017 and 5.2% in 2018 for US business and government spending on tech goods, services, and staff. This forecast assumes moderate US economic growth (2% to 2.5% real GDP growth, 4% to 4.5% nominal GDP growth). Considering this economic outlook, our updated 2017 forecast is slightly less positive than our December forecast (4.8% vs. 5.1%) for US budget growth in 2017, with our new 2018 forecast pointing to a modest improvement next year.
Three main themes define our updated forecast:
1. Steady US real economic growth will support moderate growth for US business and government spending. Despite the weak 0.7% real GDP growth in the first quarter of 2017, economic forecasts have slightly improved since our post-election update, bolstered by renewed US business confidence. US consumer spending remains strong, as a result of reduced energy costs and low unemployment. We now think it unlikely that the Trump Administration's tax and spending policies in practice will lead to higher growth rates, nor that its actual trade policies will lead to lower growth. However, clouds in the economic outlook could emerge as the effects of rising interest rates, US housing vulnerability, weak US exports from the strong dollar, and anticipated cutting of US government spending take place.
2. BT spending continues to outpace traditional IT spending, but the two segments of tech spending will begin to converge. CIOs will need to place an emphasis on spending on business technologies that help firms win, serve, and retain customers, as BT spending will rise twice as fast as IT spending. The BT agenda will grow by 9% in 2017 and 8.4% in 2018, in comparison to IT spending which will increase by 2.7% in 2017 and 3.5% in 2018. However, BT spending and IT spending’s growth rates will follow converging patterns as CIOs implement back-office systems and infrastructure that support the BT agenda. Notably, BT as a percentage of total tech spending will continue to steadily rise in the coming years, reaching 34% in 2018.
3. Cloud’s strong growth is finally showing in the top-line numbers. It’s no secret that the growing adoption of cloud has a strong impact on US tech budgets. Cloud platform services will grow at rates of 25% to 30%. Cloud application (e.g., SaaS) subscription fees will exceed license and maintenance fees, ultimately driving overall software spending growth. Spending on tech consulting services and on tech staff will rise at 6% or higher rates, as firms add internal and external resources to support their adoption of cloud solutions, analytics and big data, and mobile. However, the cloud’s positive impact on the software, services, and staff parts of US tech budgets continues to be mitigated by its cannibalizing effect on computer hardware and traditional tech outsourcing spending.