European IT services market poised for growth in 2024
LONDON, UNITED KINGDOM — The European IT and business services market could be poised for a rebound in 2024, according to new forecasts from research firm Information Services Group (ISG).
ISG’s latest index shows spending on managed and as-a-service solutions dipped 1% year-over-year in Q4 2023. However, the market was up 4% sequentially from Q3, signaling potential stabilization after several quarters of decline.
“The European market appears poised for a rebound,” said Steve Hall, ISG EMEA President. “Although down year on year against some tough comps, most segments showed positive sequential growth in the fourth quarter… This could indicate a bottoming-out of the market as we begin to move past aggressive cost optimization and start to see new shoots of investment.”
Hall cites cooling inflation, impending interest rate cuts, and more enterprise capital deployment creating a “friendlier environment for growth in 2024.”
Europe, Middle East, and Africa’s (EMEA) combined market annual contract value (ACV) reached $29 billion in 2023, down 3% over the prior year. It was the first time since 2016 that EMEA had a down market for the full year.
Still, managed services had a record year, with ACV of $15.9 billion, up 4%. IT outsourcing (ITO) also increased by 4% to $12 billion, while business process outsourcing (BPO) rose by 3% to $3.9 billion.
ISG forecasts managed services spending rising 4.25% in Europe next year, while anything-as-a-service (XaaS) models are projected for 15% revenue growth. Drivers include digital transformation led by artificial intelligence (AI), accelerated cloud migration, and recovering discretionary budgets.
Geographically, the United Kingdom remains the sector’s top market in Europe, generating a record $5.6 billion in managed services activity in 2023. France and Benelux (Belgium, the Netherlands, and Luxembourg) also grew, while Germany and the Nordics declined.
However, risks around inflation, policy changes, energy prices, and currency fluctuations persist. ISG said that enterprises need to balance efficiency with investment in digital skills.
