'Businesses are much more cost-conscious than a year ago': IT spend set to slow in 2023, says IDC

This month’s worldwide IT spending growth forecast reports growth at 4.8 per cent to $3.27tn

Vendors and resellers experienced a sharp decline in growth while others continued to benefit from long-term enterprise commitment to cloud, digital transformation and security investments.

According to IDC's latest worldwide IT spending growth forecast, overall growth this year will rise 4.8 per cent to $3.27tn, a slight improvement on last month's predictions, which reflects resilient IT services market performance.

Figures found that IT services growth is expected to hit almost six per cent, driven largely by enterprises remaining committed to long-term digital transformation investments despite short-term economic turbulence.

However, growth in IT spend, globally, is slowing.

Overall software spending growth will be almost 11 per cent, driven mostly by cloud software revenues which will increase by 19 per cent. This marks a slowdown compared to last year's cloud software growth of 25 per cent and growth of public cloud IaaS will also slow compared to last year (from 33 per cent in 2022, to 26 per cent in 2023).

A cost-conscious customer base

"Businesses are much more cost-conscious than a year ago, when inflation was adding to strong growth across much of the IT market," said Stephen Minton, VP in IDC's data & analytics research group.

"Efforts to consolidate and control cloud budgets, along with economic uncertainty, mean that IT vendors are having to adjust to a slower pace of growth in the new post-COVID market.

"Nevertheless, continued double-digit growth in overall cloud spending is driving historic levels of resiliency for the tech industry."

While software and services spending continues to grow, this contrasts with a significant pullback in capital spending on hardware and equipment, as interest rates begin to have a direct impact on financing while recent turmoil in the banking sector has added to a general sense of economic uncertainty.

"Higher interest rates around the world are clearly a headwind for capital spending this year," said Minton.

"Governments have reacted quickly to banking sector wild cards, but all of this just adds to expectations that a recession is still just around the corner."

IDC's outlook also shows PC spending will drop 12 per cent this year, while peripheral hardware spending will be down three per cent.

What little growth there is in hardware spending in 2023 is increasingly concentrated in service provider and cloud-related budgets, but this growth will also be weaker than a year ago, IDC said.

Server/storage spending is forecast to increase by just two per cent this year, down from 23 per cent in 2022.

While cloud infrastructure will continue to grow, non-cloud server/storage spending will shrink seven per cent this year.

"For IT vendors and resellers which are mostly providing on-premise and traditional hardware or software to their clients, this is shaping up to be a tough year," Minton added.

"SMB and consumer markets are feeling the impact of higher interest rates and declining confidence.

"While large enterprise investments in cloud and digital transformation remain resilient, and service providers continue to invest in cloud infrastructure, other areas of the IT market are experiencing a slowdown as the post-Covid shakeout continues to disrupt inventories, supply chains and demand."

Back in February 2023, cloud spending for the fourth quarter was also dampened by adverse economic impacts globally with growth reflecting a reduction in the market, according to Synergy Research Group.