As Covid-19 derails services momentum, Asia clings onto growth

As Covid-19 derails services momentum, Asia clings onto growth

Regional investments expected to decelerate with forecasted growth of 1.9 per cent in 2020, down from 5.5 per cent last year

Credit: Dreamstime

Following consecutive years of market acceleration, customer spending on IT and business services is expected to slump across the world in 2020, as the financial impact of Covid-19 takes effect.

According to IDC findings, global services revenue increased five per cent year-over-year during 2019, maintaining an upward curve after reporting growth of 4.2 per cent and four per cent in 2018 and 2017 respectively. Large services vendors also reported stronger bookings and book-to-bill ratios, highlighting buyer optimism and enhanced appetite for digital transformation.

Yet in response to the Covid-19 pandemic, and subsequent economic challenges, the outlook has turned downward with disruptions to both demand and supply.

From a position of strength, IDC now forecasts that the worldwide services market will decline 1.1 per cent in 2020, increasing by just over one per cent in 2021. According to the analyst firm, the new forecast is based on the Economist Intelligence Unit's projection that the real 2020 GDP will likely contract by more than two per cent, with a sharp decline in the first and second quarter offset by recovery in the second half of the year.

Closer to home in Asia Pacific, the market is expected to decelerate and grow by only by 1.9 per cent in 2020, down from 5.5 per cent last year.

“The Covid-19 pandemic is a demand shock on the services market worldwide," said Lisa Nagamine, research manager at IDC. “But it will present different challenges, as well as opportunities, to different regions, industries, services offerings, as well as services providers.”

Credit: IDC

For Nagamine, most regions will "contract somewhat" in 2020 but with different severities. Overall, Asia Pacific will continue to grow; Americas will contract slightly and Europe, the Middle East and Africa (EMEA) will be the most negatively impacted.

In Asia Pacific, the biggest impact is forecast to be felt in China. IDC expects the China services market to grow 2.4 per cent in 2020, down from 7.6 per cent in 2019, assuming a "robust economic rebound" in the second half of 2020 and government stimulus will offset the crisis earlier this year.

For the rest of the region, the market is forecast to slow to 4.6 per cent growth this year and 4.5 per cent next year, down slightly from 5.9 per cent in 2019. Compared to other regions, reports of confirmed cases and fatalities suggest that the pandemic has been better contained in the region; therefore, the outlook for the region's growth potential is more optimistic.

Meanwhile on the supply side, the impact, at least for enterprise services, will be relatively small. According to IDC, providers are quickly adopting the "new norms" of working remotely and social distancing.

The Covid-19 crisis will also tip organisations and consumers over to the online world sooner. As a result, it may improve productivity and open new opportunities.

"After the dust settles, services vendors may find their client portfolio changed, as well clients' priorities," added Xiao-Fei Zhang, program director at IDC. "They will need to re-align their digital capabilities to the 'new norm’."

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