European IT services see bumper quarter, but signs of slowing emerge

Increasing concerns over an economic slowdown in Europe have created the first signs of a potential decrease in spending on IT services and business process outsourcing (BPO).

The figures from ISG’s latest report revealed that organisations in the Europe, Middle East and Africa (EMEA) region spent $7.6bn in the second quarter of this year, which was 18% higher than the same period last year.

But like ISG’s global report released last week, spending fell compared with the previous quarter. Although EMEA’s 0.5% decline in spending compared with the previous quarter was much less than the 7% decline reported globally, it does reflect a trend and suggest slowdown.

Tech research and advisory company ISG measures IT and BPO contracts signed for more than $5m. “Demand for cloud computing and other technology services remains strong in Europe, as companies in the region continue to expand their digital transformation initiatives,” said Steve Hall, president of ISG EMEA.

“The slight dip from the first quarter may signal some concerns about inflation and other economic pressures, but ebbs and flows in this market are not uncommon.”

Cloud-based as-a-service spending increased 27% to $3.8bn in the second quarter of this year, compared with the same period in 2021, but was 3% lower than the first quarter. The largest component of the as-a-service spend was for infrastructure as a service, which was up 30% year on year at $2.8bn, while software-as-a-service spending reached $962m, which was 19% higher than the previous year. Both, however, dropped by 3% and 4% respectively compared with the previous quarter.

“This was a noticeable step down from the 40% to 50% year-on-year as-a-service growth we’ve been seeing the past several quarters, and the weakest quarter-on-quarter performance we’ve seen since the midst of the pandemic in 2020,” said Hall.

The total spend on traditional IT outsourcing contracts in the second quarter was $3.9bn. This was 10% higher than the same period last year and a 3% increase on the previous quarter. IT outsourcing accounted for $2.9bn of this and BPO spending hit $968m.

ISG said there were six mega deals, worth more than $100m, during the quarter, which was the highest number in a single quarter for five years.