European tech market expected to continue slow growth through 2018

Image result for European tech market expected to continue slow growth through 2018Forrester’s latest European tech market forecast projects that growth in purchases of technology software, hardware, and services by European businesses and government measured in Euros will hold steady at 1.6 percent in 2017, and increase to 2.2 percent in 2018.

Spending on software and tech consulting services will do better, with software spending rising by 2.5 percent in 2017 and 3.5 percent in 2018, and tech consulting and systems integration services increasing by 2.8 percent and 2.2 percent, respectively.

Communications equipment, telecom services, and tech outsourcing will be weak, with growth of 1 percent or less in both cases. Computer equipment purchases will pick up to 3 percent growth in 2018 after 1 percent growth in 2017 accelerates.

Three developments in the European tech market are central to Forrester’s latest forecast:

  • European economic growth has remained sluggish. Modest improvements in real GDP growth in France, Germany, Italy, Switzerland, and the Benelux countries have been offset by slowing in the above-average growth of Spain and Sweden and the prospect of a slump in the UK as it grapples with the challenges of Brexit. The election results in the Netherlands and France and projected re-election of Angela Merkel in Germany have removed the threat of populist governments and the break-up of the European Union, but the new governments have not yet pushed through the structural reforms that could lead to stronger growth.
  • The transition to cloud picks up steam, but cloud cannibalization holds back growth in software, tech consulting, and tech outsourcing services. Europe has lagged the US in the adoption of cloud platform services, cloud business services (middleware), and cloud applications. But with major US cloud platform vendors like AWS and Microsoft Azure opening data centers across each of the European countries, US SaaS vendors following in their footsteps, and new European SaaS vendors coming into the market, cloud adoption still represents a minority of these tech categories.

    For example, cloud applications, which in the form of either SaaS or single-instance hosted applications represent the largest software category, represented 15 percent of all app revenues in 2015, but will rise to 27 percent by 28 percent. With license and maintenance revenues still dominant but growing slowly, European software markets will not see stronger total growth until cloud represents a third or more of the market. Tech consulting services for choosing and implementing traditional software vs. cloud software is going through a similar cannibalization process. Similarly, cloud platform services are eating into traditional outsourcing, holding down growth.

  • European adoption of business technology (BT) is a force for growth. Technologies that help businesses and government win, serve, and retain customers become more attractive in periods of economic growth. European spending on software products (like CRM, eCommerce, contact centers, and customer data analytics), services (like mobile strategies, digital marketing, customer data analysis, and CRM implementations), and selected hardware products (like Internet of Things sensors and digital signage) that make up BT will grow at 6 percent to 7 percent rates, three or more times faster than the overall tech market. BT spending growth will be particularly strong in the Nordic countries; moderate in France, Germany, Spain, the Benelux countries, and the UK; and weaker in Italy, and Switzerland where growth is slowest.

With European economies poised for modest growth, and the prospect of better growth with the right policies, European CIOs should make room in their tech budgets to fund their agenda for winning, serving, and retaining customers, and its technologies to help grow their organizations’ revenues.