Forrester has just released its updated forecasts for the US tech market in 2020, factoring in the impacts of COVID-19 and the efforts to contain its spread: “US Tech Budget Outlooks In A COVID-19 Recession.” As I’ve noted, we are working with three scenarios for the US economy and, thus, the US tech market. All three scenarios assume that the US is in a recession, with each scenario based on progressively worse assumptions about the length and depth of that recession. So far, we have only modeled out the tech market implications of the two most likely scenarios; the third scenario, of a downturn as deep and long-lasting as the Great Depression of the 1930s, is remote enough (less than 10% probability) that we have not tried to model the impacts yet. Still, either of the two scenarios would be worse than the tech decline in the 2008-to-2010 recession.
- Scenario A, a best-case scenario, shows a 5% drop in US tech markets. In this scenario, the virus’s infection and death rates peak in Q2 2020 in the US, with the impacts on the economy and tech market hitting in Q2 and Q3 but reversing in Q4 2020. We view this as having a 30% probability at present, though this could change if efforts to “flatten the curve” of infection work and the federal economic stabilization program quickly counter the downward pressure coming from massive layoffs. In this scenario, 2020 tech budgets would still be 5% lower than in 2019 but stabilizing in 2021. The biggest declines would be in computer and communications equipment, tech consulting, and systems integration services as firms cut back their new project spending. Software, tech outsourcing, and telecom services would experience smaller decreases.
- Scenario B, a more damaging scenario, projects a 9% fall in 2020, with a smaller decrease of 5% in 2021. This scenario would occur if the pandemic and economic downturn last through 2020 but conditions start to improve by mid-2021. Right now, we view this as having a 60% probability. In this longer and deeper tech market downturn, firms would expand their retrenchment to their software and outsourcing spending, as well as making cuts in their tech staff.
- Scenario B would involve significant budget cuts in a broader range of industries than Scenario A. In Scenario A, the industries that would experience the big budget cuts would be those directly impacted by the pandemic and the containment efforts, like airlines, entertainment, leisure, restaurants, autos, high-end retailers, and oil and gas. In Scenario B, other industries such as financial services, professional services, other manufacturers, education, and state and local governments would suffer revenue losses and cut their budgets accordingly.