The decision by British voters last month to have England leave the European Union will drive down tech markets not only in the United Kingdom but throughout much of Europe, and the fallout will be felt for at least the next couple of years, according to analysts with Forrester Research.
In addition, the Brexit vote also could be a precursor of other challenges in Europe that could impact tech spending in what is the world’s second-largest tech market, behind the United States, according to a report issued this week by analysts Andrew Bartels and Charlotte Wang.
The vote introduced an array of uncertainties into the market—including whether Scotland and Northern Ireland will stay in the UK or remain with the EU, London remains the financial center of the region or it shifts to Paris or Frankfurt, or other countries decide to leave the EU—that will have a ripple effect beyond the UK’s borders, they wrote.
“In the near term, the economic effects of Brexit will be less important than the indirect effects,” Bartels and Wang wrote in their report. “Tech investments, like other business investments, depend on executive expectations about the future of their businesses. Brexit, in part because it was widely expected to fail, brings massive uncertainties about the future.”
Other analysts offer similar views. Gartner analysts earlier this month said they had predicted that global IT spending this year will be flat compared with 2015. However, the forecast was developed before the Brexit vote. “With the UK’s exit, there will likely be an erosion in business confidence and price increases which will impact UK, Western Europe and worldwide IT spending,” John-David Lovelock, Gartner research vice president, said in a statement.
Most immediately, the UK tech market this year will grow by only 1 percent and will be flat in 2017, the Forrester analysts wrote. Before the June 23 Brexit vote, Forrester had forecast growth of 5 percent in both years. In addition, the European tech market, which already was feeling the effects of a weak regional economy, will see no growth this year and only a 1 percent bump in 2017, which is 2 percentage points lower than what had been expected before the Brexit vote.
Furthering the problems is that the Euro will continue its weakened position against the U.S. dollar.
UK voters decided 51.9 percent to 48.1 percent to leave the European Union, a decision that had widely been unexpected despite the fact that polls had the vote increasingly close in the months leading up to June 23. Concerns about the economy and immigration policies were among the key drivers behind the push to leave the EU, despite the warnings by government officials and economic experts that such a vote would have a widespread negative impact on England and its economy.
Those concerns came true as the value of the British pound dropped sharply the day after the vote and upended the country’s political picture, with Prime Minister David Cameron—a Brexit opponent—immediately announcing he would resign. The vote was nonbinding, but Cameron had said he would honor the decision, and new Prime Minister Theresa May—who had been a not-very-vocal opponent of Brexit—has said she also will follow through on the voters’ desire to break off from the EU.
Most countries in the Eurozone will be hurt by the vote, according to the Forrester analysts. The economies in Belgium, France, Germany, Italy, Switzerland and The Netherlands—whose economies had been growing by less than 1.5 percent—could decline, and Italy is facing a possible banking crisis, they noted. In addition, Greece and Portugal, which were particularly hurt by the global recession, also are struggling again.
“The only countries with decent economic growth and above average tech market growth are Ireland and Spain in the Eurozone, and Sweden, Poland and other Central European countries outside it,” Bartels wrote in a post on the Forrester blog.
England’s Brexit Vote Will Ripple Through the EU Tech Market
The outlook for the European tech market already was being hindered before the Brexit vote, according to the analysts. The regional economy already was sputtering, the U.S. dollar remained strong and the rising political populism—of which the Brexit vote was an example—threatened unity and growth in the economy.
“The Syrian refugee crisis and the terrorist attacks in Paris and Brussels have caused a surge in anti-immigrant populist parties, with rising threats to the flow of goods, services, and people within the EU that has underpinned its growth over the past five decades,” they wrote. “Faced with the prospect that business operations outside their home country could be hampered, European CEOs turned cautious in their investment plans even before Brexit.”
Throughout Europe, most tech categories will see little or no growth over the next two years. In 2016, software and tech consulting services will see growth of 1.5 percent and 1.4 percent, respectively, though computer and communications equipment, outsourcing and telecommunications services will all see declines. Next year, software spending will be up by 2.3 percent, and computer equipment, outsourcing and consulting will all increase. Spending on communications equipment and telco services will continue to decline.
Software-as-a-service (SaaS) and cloud platform services also will see growth, they said. SaaS subscription revenues for applications will grow 31 percent this year and 23 percent in 2017.
Forrester analysts listed four possibilities that could change their views on the European tech market. Two would be positive: England changes its mind on Brexit (which is unlikely at this point) and whether German officials boost their economy by moving away from economic austerity measures.
However, two events that could aggravate the situation would be a banking crisis hitting Italy or if voters in France and the Netherlands elect nationalistic, anti-EU governments next year.