The European tech market is caught between a rock and a hard place. On one side, high inflation and the corresponding fall of the Euro and pound against the dollar is discouraging purchases, especially imports. On the other side, the Russia-Ukraine war has disrupted supply chains and halted the flow of the cheap natural gas that Europe’s economies need to grow. Add the lingering effects of the pandemic-driven downturn, and a recipe for a partial halt in growth emerges.
Due to these challenges, Forrester forecasts that European tech spend will grow only 3.6% in 2023 — 170 basis points lower than our previous forecast. Companies will focus tech spend on cost savings, operational efficiency, and value-driven investments. For 2022–2027, Forrester forecasts that tech spend growth will be driven by:
- Software and services. By 2027, software will represent 31% of tech spend, up from 23% pre-pandemic; services will represent 46% of tech spend. And growth in these two categories is only increasing: In 2027, 90% of technology spend growth will come from software and services. IT service providers are benefiting, with Accenture seeing 29% growth in Europe for fiscal year (FY) 2022 in local currency and Capgemini raising its full FY 2022 aggregate revenue guidance to 14% to 15% growth in constant currency.
- Business cloud services, including both new buyers and increased spend per buyer. Much of the growth in software and services is driven by greater cloud adoption. In 2021, 44% of the average European country’s enterprises bought cloud computing services over the internet, compared to 30% in 2018. Rising inflation will accelerate the shift of customers from on-premises software to cloud computing services, as businesses look to control costs. And buying cloud services creates a positive feedback loop: As enterprises rely more on cloud services, they use more sophisticated cloud functionality such as hosting environments for application development, testing, and deployment.
- Innovative high-value activities. European countries are increasingly focused on innovation in an attempt to keep up with the US market. In 2021, 17% of Ireland’s gross value added came from publishing (including software), audio/visual, broadcasting, computer programming, consultancy, and related activities, up from just 9% in 2016. In 2021, Switzerland was ranked the most innovative economy in Europe, with one of the continent’s fastest per capita tech spend growth rates driving GDP growth in financial services, chemicals, and pharmaceuticals.
- New opportunities in data analysis and cybersecurity. The European Commission plans to invest €269 million in cybersecurity in 2022, with the proposed Digital Operational Resilience Act potentially causing an estimated 22,000 firms to further emphasize cybersecurity tech spend. Volkswagen plans to invest €7 billion in a Car.Software workforce for connected cars, intelligent body and cockpit, autonomous driving, vehicle motion and energy, and digital business and mobility services. In healthcare, the recent launch of the European Health Data Space promises gains of €11 billion in societal benefits over the next 10 years by offering health data for research, innovation, policy-making, and regulatory activities in a consistent, trustworthy framework that complies with EU data protection standards.
There are clear challenges for the European tech market — but there are also clear opportunities. To learn more about both and to see the numbers behind Europe’s forecasted €1.3 trillion tech spend in 2023, read Forrester’s new report, European Tech Market Forecast, 2022 To 2027. And keep an eye out in January for Forrester’s forecasts on US and global tech spend between 2022 and 2027.