The odds of a market decline are becoming greater due to the COVID-19 pandemic and the national emergency.
Citing the COVID-19 pandemic and national emergency declared by President Trump, Forrester Research is revising its tech market outlook downward. The research firm said in the best case scenario, it now projects the US and global tech market growth slowing to around 2% in 2020.
“That assumes the US and other major economies have declined in the first half of 2020, but manage to recover in the second half,” wrote Andrew Bartels, vice president and principal analyst, in a briefing. “There is also a 50 percent probability that US and global tech markets will decline by 2% or more in 2020 if a full-fledged recession hits.”
In either scenario, Bartels said, computer and communications equipment spending will be weakest, with potential declines of 5% to 10%. Tech consulting and systems integration services spending will be flat in a temporary slowdown and could be down by up to 5% if firms really cut back on new tech projects, he said.
Software spending growth will slow to the 2% to 4% range at best and will post no growth in the worst case of a recession, Bartels said. Tech outsourcing and telecom services will hold up better, though contract revisions could cause spending to go down, as well, he said.
“The only positive notes would be continued growth in demand for cloud infrastructure services and potential increases in spending on specialized software, communications equipment, and telecom services for remote work and education as firms encourage workers to work from home and schools move to online courses.
The “sharp deterioration in the economic outlook” globally has been further fueled by dramatic US travel restrictions, particularly internationally, Bartels said.
Other actions that are taking a toll on the economy include the NBA, NHL, NCAA, and other sports being canceled or games suspended; the cancellation of cultural events like SXSW and business conferences; the closure of many US universities and school districts for at least several weeks; many businesses encouraging employees to work from home; and US stock markets suffering their largest one-day drop in prices since 2017, he said.
As for what will happen beyond Q1 and Q2 of 2020, Bartel cited the fact that the Federal Reserve has already lowered interest rates and the president signed an $8.3 billion spending package to help fight the spread of COVID-19 as hopeful signs.
“The Democratic House, the Republican Senate, and the president are likely to agree on some kind of economic stimulus package,” Bartels said. “Lower oil prices are a boon to consumers. But these initiatives will do little to counter fear-driven contractions in consumer spending if COVID-19 infects hundreds of thousands of Americans and leads to quarantines and self-quarantines of millions of people.”
Properly designed measures to cushion the financial burden on those directly impacted will limit the down-pull on consumer spending, he said, and a broader stimulus can help speed recovery.
“We don’t know yet how these negatives and positives will play out,” Bartels said. “The odds have risen to a 50% probability of a US recession, with at least two quarters of declining GDP in 2020.”