Economic forecasts are growing pessimistic following the effects of the novel coronavirus pandemic. IT spending is projected to grow 1% in 2020, down from earlier projections of 4% growth year-over-year, the International Data Corporation announced Wednesday.
The analyst firm is projecting a "significant slowdown" is hardware spending for the first half of 2020. With supply chains, trade and business planning interrupted by the outbreak, spending on software and services could diminish.
In the 1% scenario, weaker economic growth stems from decreased business and consumer spending across all technologies in the next few quarters, according to an announcement from Stephen Minton, program vice president, customer insights & analysis at IDC.
The full economic impact of coronavirus is still unknown as supply chains are curtailed and companies ask employees to work remotely. The fallout could impact IT jobs and spark a dip in hiring.
Almost three-quarters of businesses in the U.S. have had their supply chains disrupted because of the COVID-19 outbreak, Supply Chain Dive reports. Of the 628 supply chain experts interviewed by the Institute for Supply Management, 44% do not have a plan in place to deal with supply disruptions from China.
For business technology, reduction in IT spending can take a number of shapes. Shipments of laptops or server components could face delays, disrupted by a clipped supply chain. But the normal course of business operations are curtailed. Projects that require cross-department collaboration or the addition of consultants may be delayed.
The impact for IT spending is still very fluid, Minton told CIO Dive in an email. While the outbreak has a direct impact on supply chains and inventory, it could also cause a lag in buying cycles and product development.
Economists are watching for a V- or U-shaped market rebound: Either recovery is quick or it is prolonged.
Part of the technology impact is certain parts of IT spending cannot be switched off as quickly as capital expenditures such as buying PCs or other hardware, Minton told CIO Dive. Many companies have long-term contracts for services, software or cloud products.
"Downturn in any crisis tends to be more sharp for hardware markets, whereas IT overall shows a more U-shaped taper as new projects start to slow down and contracts come up for renegotiation and so on," Minton said. On the upswing, it takes time for IT spending to come back when compared to other business or consumer spending.
Purchasing could take a hit as some industries struggle with revenue losses, such as the travel or restaurant industry. If revenue is curtailed, companies could delay projects or modernization efforts.
In some cases, with travel restrictions in place, it could just take longer for business to get things done, Minton said.
The lurking unknown is how long it will take for impacts from coronavirus to play out. As organizations cancel large gatherings and encourage remote work, many are seeing near-term impacts. But economic recovery and a return to normal business activity could take longer and have to wait for the pandemic to taper.
"What we do feel pretty confident about, however, is that the impact is not just a case of supply chain disruption but is extending to a more general drag on business activity at least in the short term," Minton said. "The longer it goes on beyond Q1, the more we will lean towards the pessimistic scenario."