Economic instability unseen since the 2008 global financial crisis means that Forrester has significantly revised our Australian technology spend forecast in order to help CIOs and supply-side technology leaders understand the likely impact of COVID-19 and natural disasters in Australia.
From a base of US$53.6 billion in 2019, our original forecast estimated that total spending would reach $58.1 billion by 2021. However, after reviewing the revised IMF growth forecasts for Australia published in March 2020 and assessing the macroeconomic outcomes modelled by the Australian National University’s (ANU’s) Centre for Applied Macroeconomic Analysis, Forrester sees two possible scenarios:
- Optimistic: A temporary reduction in global activity dampens Australia’s tech growth to 2.3%. In this optimistic scenario, the impact of COVID-19 on Australia is temporary; growth is reduced per the IMF’s model, with recovery in mid- to late-2020. Using revised GDP growth rates for Australia of 2.0% for 2020 and 2.4% for 2021, our tech market growth rates drop by a full percentage point from our previous forecast to 2.3%; we then project a return to growth in 2021 of 4%. What’s driving the reduction in growth in this scenario? Contractions in spending in hardware categories due to supply chain disruptions from China which shut down and noted “short-term constraints and delays” — rather than a lack of demand.
- Pessimistic: Pandemic effects deliver economic shocks, reducing Australian tech growth to -1.0%. In this pessimistic scenario, we drew the impact of COVID-19 from the ANU Centre for Applied Macroeconomic Analysis’s examination of the macroeconomic outcomes and financial markets. This model assumes that the outbreak can’t be contained and includes, in addition to the impact of external factors, a calculation of the local economic shocks within the Australian economy. The revised GDP growth rate for Australia under the ANU scenario is -0.1% in 2020; we then forecast GDP rebounding to 3.0% in 2021. Under these conditions, we expect tech growth to contract in 2020 by -1.0% before rebounding to 4.3% in 2021. This sudden contraction and recovery is similar to the recovery from the global financial crisis, with all aspects of the tech market contracting in 2020 in response to a six-month recession but expanding further in 2021.
In the current climate, Forrester recommend that CIOs consider steps one to four below while planning for steps five and six to come into play in the worst-case scenario.
- Cut discretionary hardware replacements and upgrades.
- Pare back the new project portfolio to address core or regulatory requirements.
- Optimize licensing and review non-core cloud subscriptions.
- Renegotiate telecommunications agreements.
- Renegotiate outsourcing agreements.
- Stand down or lay off workers.