A global recession in second half of 2023 expected to significantly hit IT spending

Inflation will be the main drag on the economy, presenting a tough task for central banks, IDC president says

IDC president Crawford Del Prete speaks at the IDC CIO summit in Dubai on Wednesday. Photo: IDC

Global information technology spending in 2023 is expected to be considerably affected by a recession, which is expected in the second half of the year, the president of the International Data Corporation has said.

IT spending by companies is set to grow by as much as 5.3 per cent on an annual basis to $3.3 trillion this year but could fall to about 3 per cent should a recession take hold, Crawford Del Prete told The National in an interview on the sidelines of the IDC CIO Summit in Dubai on Wednesday.

Inflation will be the main drag on the economy, presenting a tough task for monetary institutions such as the US Federal Reserve and the European Central Bank, he said.

“That, combined with geopolitical challenges associated with the war in Ukraine … and the opening up of China, from zero-Covid to a more open policy, will also place demand on good ground. All this will create a relatively inflationary environment,” Mr Del Prete said.

“The challenge for IT spending is that it takes potential dollars off the table that companies need to spend on other things, like the price of goods, services and energy. We would then see a deceleration in IT spending.”

Still, a recession — often defined as two consecutive quarters of negative gross domestic product growth — this year “probably won't be that bad”, he said.

Enterprises and governments have lauded the critical role that digital transformation plays in the economy and society, as the world prepares for a future powered by technology.

At the same time, they also have to deal with the challenges of macroeconomic and geopolitical factors that hinder their ability to spend more on innovation.

The Fed raised interest rates this month — the eighth time since 2022 — by 25 basis points and hinted that more increases were to come as it attempts to rein in decades-high inflation.

The International Monetary Fund, which has also warned of rising recession risks, expects global inflation to decline to 6.6 per cent in 2023, from 8.8 per cent last year, and fall further to 4.3 per cent in 2024.

It has also raised its global economic growth estimate for this year to 2.9 per cent, from a previous forecast of 2.7 per cent.

Russia's military offensive in Ukraine has also disrupted global supply chains and sent oil prices soaring, but both have since stabilised a year into the conflict.

Companies need to properly analyse their strategies and introduce technology that would not only solve business problems but also create more value for its customers and positively affect their bottom lines, Mr Del Prete said.

At the moment, artificial intelligence is the most crucial technology segment that enterprises must tap into, as it will be able to bring down costs and upskill workers, he said.

“Any company that is not looking at AI as a way to make their business and workers more productive and raise their margins is running a significant risk of becoming irrelevant over time,” Mr Del Prete said.

“There is no greater tech that you should be looking at and understanding right now. With AI, we are at the dawn of a new era.”

The latest available data from the IDC suggests that global spending on AI-centric systems will surpass $300 billion by 2026, surging about 154 per cent from an estimate of $118 billion in 2022.

That would be a compound annual growth rate of 26.5 per cent from 2022 to 2026, which is more than four times greater than the 6.3 per cent forecast for global IT spending over the same period.

Mr Del Prete acknowledged jobs could be lost from an automation standpoint but he said companies, as a result of using AI, would be able to create or grow new business units, resulting in the need for more staff.

“I don’t believe we’re becoming over-reliant on AI; it is going to allow people to play to their strengths,” Mr Del Prete said.

“When it comes to the journey to digitisation and rethinking consumer experiences, we’re probably at the end of the beginning.

“We have a whole lot more to do, and we're seeing levels of interaction in more ways that we can’t even imagine today.”