Even before the threat of coronavirus, the US economy was poised for a slowdown in 2020.
Slowing real GDP growth of 2% or less, in turn, will lead to slower growth of US tech budgets: From 4.5% in 2019 to 4.2% in 2020 and 4% in 2021, according to Forrester's latest US tech budget forecast. That slowdown still means US tech budgets will grow over the next two years, just at a slower pace. But the direct and indirect economic impacts of the coronavirus -- which, like the disease itself, range from mild to dire -- add to a list of worries, including the continuing US/China trade war, fizzling out of the tax stimulus, slowing growth in and exports to European and Asian economies, and the age of the expansion. As a result, our forecast could well be too optimistic. CIOs and their business partners should plan for modest increases in their tech budgets but prepare for cuts if needed.
The slowing growth in US tech spending will play out differently in different industries. US manufacturers and exporters have seen little or no growth in revenues and will hold back on their tech purchases. Quarantines and travel shutdowns related to the virus have already disrupted supply chains, adding to the tariff disruptions many manufacturers had already been experiencing. Cancellations of business conferences and rethinking of vacation plans will cause pain to airlines and hotels, at least in the short run. Lower oil prices will cause the oil and gas industry to cut tech budgets, along with the chemicals industry.
But strong job growth, rising wages, low-interest rates, and low energy costs should keep US consumer spending on a growth path. Low-interest rates will also help sustain a rise in home sales and housing construction. These forces will benefit financial services firms, insurance carriers, education providers, healthcare providers, construction companies, and professional services firms. Retailers would normally benefit from solid consumer growth, but the shift to the internet means that online retailers will continue to grow their tech spending but struggling traditional retailers will cut back. The media, entertainment, and leisure industry will see the strongest tech budget growth, but most of that growth will be driven by the rapidly rising tech budgets of digital media companies. These industries will generally see tech budget increases above the national average.
This cautiously positive outlook for US tech budgets could change if the coronavirus outbreak turns into an actual pandemic. As a result, we plan to update our US tech market forecast in May, when we get data on US economic activity and tech investment in Q1 2020 and have more insight into how bad and widespread coronavirus is.
This post was written by VP, Principal Analyst Andrew Bartels, and it originally appeared here.