Resiliency and Growth Expected in European IT and Business Services Spending through 2027, According to IDC

Prague – Spending on IT and business services in Europe is expected to increase by 5.3% year on year in 2023 to reach $320.8 billion. The compound annual growth rate (CAGR) during the 2023-2027 period is forecast to be 5.6% for the Western Europe (WE) and 5.8% for Central and Eastern Europe (CEE), a dynamic that demonstrates the continuous resiliency of the European services markets during turbulent times. Spending during the forecast period will be driven by investments in digital capabilities by enterprises and government entities as they seek to become digital-first organizations.

The WE services market recorded nearly double-digit growth year on year in 2022, thanks to strong performances from many leading IT services vendors. IDC predicts a slowdown to 5.4% growth for 2023 due to the impact of the energy crisis, the Russian-Ukraine war, and structural changes in investments in WE countries. A strong rebound is not expected before 2025.

Over the 2023-2027 period, project-oriented services are expected to be the fastest growing segment, led by business consulting and custom application development spending. Within managed services, significant growth is expected for hosting infrastructure services, due to continued demand for hosting services capacity. In education, the shift to digital training is strengthening as a direct impact of the Covid pandemic, leading to the growth of related support services spending.

“European organizations are exploring opportunities to leverage AI in their operations, which will lead to accelerating investments in project-oriented services," says Jiri Novotny, research manager for Software and Enterprise Applications at IDC. "Organizations seeking to migrate processes to the cloud will invest in modernizing their current applications by moving them to hybrid cloud infrastructures, re-architecting them into cloud-native applications, or enhancing them with newly developed cloud-native applications.”

Organizations are simultaneously focusing on sustainability as a critical strategic priority in the forecast period. Sustainability-related initiatives will drive investments primarily in IT consulting, followed by custom application development and new software creation.

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The CEE market remains resilient, driven by the demand for digital transformation and IT outsourcing services. Project-oriented spending, including software development and customization, is expected to be the fastest-growing segment, followed by managed services, due to ongoing investments in operational optimization. Moreover, the political and economic situation in the region may also impact foreign investment and EU funding opportunities in some countries (an inhibitor not present in WE). Moderate growth is expected in 2023, with a rebound in 2024 as macroeconomic conditions (inflation rates, high energy prices, geopolitical instability) improve.

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