Market decline

From pandemic to recession: Chances of tech market decline in 2020 have dropped to 50%

Based on recent events related to the novel coronavirus pandemic, we are downgrading our technology market forecast for 2020. At best, we now see US and global technology market growth slowing to around 2% in 2020. This assumes that the United States and Other major economies experience economic decline in the first half of 2020 but recover in the second half. But we believe there is a 50% chance that the US and global tech markets decline by 2% or more in 2020, in the event of a full-blown recession.

In either scenario, spending on IT or communications equipment will be the lowest, with potential declines of 5-10%. Spending on technical consulting and systems integration services will remain stable in a temporary downturn and could drop as much as 5% if companies really scale back on new technology projects. Growth in software spending will slow in the 2% to 4% range at best and show no growth in the worst case during a recession. Outsourcing of technology and telecommunications services will hold up better, although contract revisions could also lead to lower spending.

The only positive notes would be the continued growth in demand for cloud infrastructure services and the potential increase in spending on specialized software, communications equipment, and telecommunications services for remote work and distance education as businesses encourage workers to work from home and schools are adopting online courses.

Behind this downward revision of our outlook on the technology market hides a marked deterioration in the economic outlook. March 11, 2020 saw two announcements that significantly increased the risks of an economic recession in the United States and around the world:

  • The World Health Organization has declared COVID-19 a pandemic. This announcement underscored the severity of the disease and its broad impacts on illness and death.
  • President Trump’s televised speech confirmed that COVID-19 is a major problem, but also showed that the president has no real idea what to do about it. The ban on European travelers from coming to the United States has been poorly communicated; will be ineffective since COVID-19 is already well established in the United States; upset European leaders and worsened the prospects of a coordinated international attack on COVID-19; and needlessly disrupted an already declining airline industry. His proposal to suspend payroll taxes drew limited support in Congress and failed to address the financial difficulties faced by laid-off workers and temporary workers who would not pay these taxes anyway.

In the absence of effective leadership from the President, businesses, organizations and individuals have acted in useful but ineffective ways to contain the spread of the disease and, therefore, are economically devastating:

  • The NBA, NHL, NCAA and other sports have canceled or suspended games.
  • Cultural events like SXSW and business conferences have been canceled.
  • Many American universities and school districts have closed and sent students home for at least several weeks.
  • Many companies have encouraged employees to work from home.
  • Consumers have rushed to stock up on Purell, toilet paper and staple foods in preparation for self-quarantines.
  • And the US stock markets suffered their biggest single-day price drop since 2017.

See also: List of cancellations of coronavirus technology conferences

All of these actions will have an impact on the US economy. Even before this week, consumers, who generate two-thirds of US economic activity, had pulled out of travel and entertainment, as had many businesses. Distressed firms in these and allied industries began to lay off workers. This week’s development will likely prompt consumers to cut back on spending on most items for at least the next few weeks, and to stockpile health care spending if needed. Firms, already slumped in response to the US-China trade war, will postpone major investments given the sharp drop in their stock prices and the prospect of reductions in consumption. Travel, tourism, and entertainment companies envision their revenues to drop by 30%, 50% or more. Oil and gas companies have seen crude oil prices drop below $ 35 a barrel, which will push some out of business. All of this points to at least a quarter of economic decline in the United States.

The question is, what will happen beyond Q1 and Q2 of 2020. The Federal Reserve has already lowered interest rates. Congress passed and the president signed an $ 8.3 billion spending program to help fight the spread of COVID-19. The Democratic House, the Republican Senate and the President are expected to agree on an economic stimulus plan. Falling oil prices are a boon to consumers. These initiatives will do little to counter the fear-induced contractions of consumer spending if COVID-19 infects hundreds of thousands of Americans and results in quarantines and self-quarantines of millions of people.

But well-designed measures to cushion the financial burden on those directly affected will limit the decline in consumer spending, and a broader stimulus can help accelerate the recovery. We don’t yet know how these negatives and positives will play out. But we think the odds have dropped to a 50% chance of a recession in the United States with at least two quarters of declining real GDP in 2020.

A similar story is playing out in the rest of the world. While China appears to be on the path to economic recovery, the economies of Japan and South Korea are faltering. In Europe, the near total closure of Italy and the increase in incidents of infection and death in France, Germany, the United Kingdom and elsewhere will have similar negative effects on European economies as the states are experiencing. -United. The US ban on European visitors is a psychological blow to European leaders seeking US support and leadership. Thus, the risks of recession in Europe, Japan and South Korea are now very high.

This article was written by Vice President Senior Analyst Andrew Bartels, and it originally appeared here.