Global IT spending to top $4.6 trillion in 2023 if not hit by economic volatility

Spending on devices is the worst performer as it is projected to drop further as inflation forces consumers to delay purchases

More of enterprises' budgets were allocated to digital transformation last year, to keep pace with an increasingly digital world. AFP

Global IT spending is projected to expand by about 5 per cent to more than $4.6 trillion next year, as enterprises continue to implement more digital transformation initiatives, but it could be adversely affected by uncertain economic conditions, a new study from Gartner showed.

IT managers and chief information officers began allocating more of their companies' budgets last year to digital transformation, after the effects of the Covid-19 pandemic wore off, to keep pace with an increasingly digital world that they know will be critical in their long-term operations, the US research company said on Tuesday.

They are also keeping an eye on factors such as high inflation, more expected interest rate increases, the effects of the protracted Russia-Ukraine conflict and the spectre of a recession, which have the potential to hit their budgets, it said.

The expected 5 per cent growth next year is half of the expansion posted in 2021, when spending hit almost $4.4 trillion, and a jump from 0.8 per cent growth in 2022, in which spending is pegged to reach $4.43 trillion, Gartner said.

Most notably, global spending on consumer devices will deliver the worst performance, swinging to an annual decline of 8.4 per cent to $740 billion this year from growth of about 16 per cent to $807.5 billion last year, Gartner said. It is expected to further drop by 0.6 per cent to $735 billion next year, as consumers further delay their purchases.

CIOs are working to improve cost optimisation rather than aggressively increasing or cutting IT budgets, which they bank on to protect their companies' bottom lines knowing well of the possibility of an economic recession, said Miriam Burt, managing vice president analyst at Gartner, at a press briefing.

“We don’t see CIOs at this point in time indicating that they will be going to slash costs willy-nilly; in fact, they’re talking about using IT a little bit more smartly,” Ms Burt said, in response to questions from The National.

“It’s not a one-or-other play; we see CIOs going for the margin play. It could be that sometimes they have to cut the cost or turn up the revenue, because if they protect the margin then they would protect profitability — and those are going to be the watchwords for 2023 and 2024.”

The adoption of digital transformation is growing as it is a key pillar of the future economy, largely fuelled by emerging technology.

The digital transformation market is projected to reach about $3.95 trillion by 2030, from about $608 billion in 2021, growing at a compound annual rate of more than 23 per cent, according to data from Grand View Research.

The IT sector, meanwhile, is looking out for hints on persisting economic challenges: inflation has remained stubbornly high and reached 40-year peaks, the US Federal Reserve is expected to continue raising interest rates, and the Russia-Ukraine war continues to choke off supply chains.

“The economic turbulence, which has caused a lot of unstable movements, has created a lot of volatility in the environment,” Ms Burt said.

In the Middle East and North Africa, IT spending growth is estimated to be almost flat in 2022, but to bounce back with a 3.1 per cent rise to more than $178 billion next year, the Gartner study showed.

In devices, the Mena region is not far behind in the global forecast, with spending expected to rise almost 9 per cent to about $28 billion in 2022, from $30.8 billion last year, which was a 15 per cent spurt from 2020. Spending is expected to rebound by 1.1 per cent to about $28.5 billion in 2023.

“Inflation has really cut into consumer purchasing in almost every country. The purchasing power has been reduced to the point that many consumers are now deferring their 2022 device purchases until 2023,” Ms Burt said.

Global shipments of smartphones, the top consumer electronic device, are expected to decline 2 per cent annually in 2023, a swing from a previous growth forecast, as macroeconomic challenges and weak consumer demand weigh on the sector, Counterpoint Research reported last week.

That compares with the Hong Kong-based research firm's earlier forecast of a 6 per cent year-on-year increase in shipments next year, and an 11 per cent drop from the 1.391 billion units shipped last year.

Global IT spending on software is projected to post the largest rise next year, growing 11.3 per cent to almost $880 billion, followed by IT services, the second-largest vertical in terms of value, which is seen expanding by about 8 per cent to $1.36 trillion, Gartner said.

Spending on data centre systems is estimated to grow by 3.4 per cent to $216 billion, while communications services are expected to expand by 2.4 per cent to $1.47 trillion, making it the highest component in terms of value. All global spending growth estimates are in line with the Mena figures, the Gartner study showed.