Global IT spending to slow down in 2023 as companies feel pinch of high interest rates

Overall growth forecast to slow to 4.4%, International Data Corporation says

The IDC expects the most significant impact from lower IT spending to be felt in consumer markets. AFP

Spending on IT around the world is forecast to slow down in 2023 as high interest rates affect the budgets of companies, according to a report from the International Data Corporation (IDC).

Overall growth this year will slow to 4.4 per cent, reaching $3.25 trillion, marginally down from a March forecast of 4.5 per cent but a swing from the 6 per cent predicted in October, the US research firm said this week.

However, the updated figure is also down from the 5.3 per cent, or $3.3 trillion, revealed by IDC president Crawford Del Prete to The National in a February interview.

“Since the fourth quarter of last year, we have seen clear and measurable signs of a moderate pullback in some areas of IT spending,” Stephen Minton, vice president at the IDC's data and analytics research group, wrote.

“Tech spending remains resilient compared to historical economic downturns and other types of business spending, but rising interest rates are now affecting capital spending.”

Enterprises and governments have to deal with the challenges of macroeconomic and geopolitical factors that hinder their ability to spend more on innovation.

The US Federal Reserve raised interest rates last month — the ninth time since 2022 — by 25 basis points and hinted that more increases to come to rein in inflation.

The International Monetary Fund (IMF), 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.

This week, IMF managing director Kristalina Georgieva said that about 90 per cent of advanced economies are projected to see the growth rate slow this year as higher interest rates affect expansion.

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

The inflation fight 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, Mr Del Prete had 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,” he said.

Tech spending remains resilient compared to historical economic downturns and other types of business spending, but rising interest rates are now impacting capital spending

Stephen Minton,
vice president at the International Data Corporation

The IDC expects the most significant impact from lower IT spending to be concentrated in consumer markets, with consumer IT spending now forecast to decline by 2 per cent in 2023, Mr Minton said.

“This will be a second consecutive year of declining consumer tech spending,” Mr Minton said, noting that it would be a “huge change in fortunes” from the consumer growth that hit 18 per cent in 2021.

The IDC has also scaled back its projections for a number of additional hardware categories, including servers, wearable devices and peripherals, after reductions to personal computer forecasts a month ago.

Projections have been reduced for on-premise infrastructure investments by enterprise buyers, while cloud and service provider deployments remain more resilient overall, it said.

“Service provider spending is still weakening from last year's highs as the industry adjusts to slower post-Covid growth, but planned investments by cloud and hyperscale providers have broadly held up since last month,” it said.

“Strong demand for cloud services continues to drive growth despite inflationary pressures but non-cloud spending is set to decline.”