The European IT and business services market continued to grow year-on-year in the third quarter, despite signs that economic concerns could dampen demand, according to the latest state of the industry report from Information Services Group ( ISG ) (Nasdaq: III ), a leading global technology research and advisory firm.
The EMEA ISG Index™, which measures business outsourcing contracts with an annual contract value (ACV) of US$5 million or more, shows that the ACV of the combined market (both managed services and cloud-based XaaS) remains near record highs, reaching US$7.6 billion, up 7% from the prior year. This is the third consecutive quarter in which the region has topped US$7.5 billion in VAC, although growth has slowed sequentially in the past two quarters.
«European businesses continue to push ahead with their digital transformation initiatives, but we are seeing signs of slowing spending due to concerns about the region’s economy,» said Steve Hall, President of ISG EMEA.
Europe continues its shift to cloud computing, with XaaS up 5% in the quarter to US$3.8 billion, but this is the weakest quarterly growth for XaaS since the start of the year 2015. In this segment, infrastructure as a service (IaaS) grew by 13% year-on-year to US$2.9 billion, while the smaller software market as a service (SaaS) decreased 14% to US$924 million.
“Cloud computing spending has grown rapidly in Europe, averaging more than 40% growth per quarter over the past five quarters,” Hall said. “This quarter marks a pronounced slowdown in that trend, driven primarily by a downturn in SaaS spending as decision-making slows in response to the general economic climate. »
Demand for managed services, meanwhile, remains strong. A record 281 service contracts were signed during the third quarter, an increase of 15% over the previous year. CAV rose 9% to US$3.8 billion, the third consecutive quarter above the US$3.5 billion mark, although it was down 3% from the quarter previous.
Within managed services, information technology outsourcing (ITO) grew 21% to US$3.1 billion, driven by double-digit growth in infrastructure and development services and maintenance (ADM), while business process outsourcing (BPO) fell 23% to US$702 million, although demand for engineering and R&D services remains strong .
From a geographic perspective, the region’s largest market, DACH (Germany, Austria and Switzerland), generated US$1.1 billion in service CAVs, more than double the previous year, thanks to to the strength of ADM and infrastructure services. The UK, meanwhile, saw its streak of US$1 billion quarters halted three times, with CVA of around US$700 million, up more than 60% from the weak quarter. of the previous year. Third quarter growth in the UK was driven by strong demand for ADM services and the banking, financial services and insurance (BFSI) sector. France saw a slight increase, to about 780 million US dollars, while the Nordic countries and Southern Europe,
Results since the beginning of the year
Combined EMEA market CAV reached a record US$23.2 billion for the first nine months, an increase of 15.5% year-on-year. XaaS services grew 23% to record US$11.5 billion, while services grew 9% to record US$11.5 billion, on volume record 798 contracts, an increase of 15% compared to the previous year.
Global forecast for 2022
ISG believes that economic uncertainty caused by rising interest rates, energy shortages, supply chain disruptions and persistent inflation is dampening near-term business demand. The firm maintained its growth forecast for services at 3.5% for the year, and lowered its forecast for XaaS to 10.5%, from 18% in the previous quarter.