Will Recession Dent IT Spending?

C suite behavior never fails to change when recessions threaten. If they believe revenue will slow, in addition to revenue growth rates, then adjustments will be made on cost elements to preserve the expected or promised levels of firm earnings, even in the face of lower demand. 

The question always asked when such pullbacks occur is whether particular suppliers and areas of spending will be affected. Consider spending on information technology, capital investment or digital transformation. 

Some recent estimates suggest IT spending plans will be almost unaffected if recession emerges globally in 2023 or continues from 2022 (assuming recessions already have begun in some countries). On the other hand, a recent KPMG survey of chief executive officers in the United Kingdom already suggests significant action or planned action to slow spending on digital programs. 

First, the argument for sustained spending includes a forecast by Gartner that predicts worldwide IT spending will grow five percent to $4.6 trillion in 2023, despite the expected economic difficulties. Some even argue IT spending is unaffected by recessions. 

source: Gartner. 

The countervailing argument is that CEOs already seem to be preparing for slowdowns in digital spending. Some 36 percent of U.K. CEOs polled by KPMG have already paused or reduced their digital transformation efforts. 

Another 36 percent say they will do so in the next six months. 

CEOs in other regions are even more likely to have reconsidered their short-term strategy, KPMG says.

source: KPMG

 

By definition, recessions are periods of lower gross domestic output and lower business profits. Hence the need for businesses to reduce spending. And despite a secular trend of IT spending growth, recessions do slow the rate of growth, while leading to spending drops in some categories.  

Perhaps much hinges on expectations of how severe a recession is coming. The 2008 global recession led to sharply-lower spending. Other periods seem not to have affected spending as much. The Covid pandemic arguably led to an increase in spending, for example, even as output diminished in the wake of economy shutdowns. 

It would be unusual if some areas of IT were not affected by planning for a recession. The degree of impact might hinge on expectations about how severe the recession might be.