IT spending dips 5% in Americas amid economic fears: ISG

CONNECTICUT, UNITED STATES — The demand for IT and business services in the Americas dropped 5% year-on-year to 11.8 billion for the fourth quarter of 2023 as economic and geopolitical concerns continued to weigh on the market. 

According to the latest state-of-the-industry report from Information Services Group (ISG), this decline marks the fourth fall in six quarters as economic and political doubts persist.

By segment, managed services are the only ones with a recorded growth in Q4, climbing by 5.2% to $5.2 billion. ISG said that the segment’s growth was powered by a 72% surge in contract restructurings, reaching an all-time high of $2.5 billion. However, new contract spending slid 22% versus the prior year.

Within managed services, the annual contract value (ACV) of the IT Outsourcing sector rose 23% to $4 billion, driven by strong demand for applications and data center services, while business processing outsourcing (BPO) fell 31% to $1.2 billion.

Spending on as-a-service (XaaS) models sank 12% in Q4 — the fourth straight quarterly descent. Infrastructure-as-a-service (IaaS) also fell 18% to $4 billion, while software-as-a-service (SaaS) edged up 1% to $2.5 billion. 

For the full year 2023, the Americas combined market generated $47.5 billion in spending, down 6% over the prior year—the first time the combined market declined in a full year.

Still, ISG is forecasting a 4.25% growth for managed services and a 15% revenue growth for XaaS in 2024.

“We expect spending for application modernization and business transformation projects led by GenAI to continue at high levels in 2024,” said ISG Americas and Asia Pacific Vice Charman and President Todd Lavieri.

“Public cloud spending should accelerate as optimizations phase out. We also expect small discretionary deals to recover, as well as Financial Services industry spending to rebound.”