The global economic picture is not a pretty one, increasing inflation, supply chain disruption, the economic implications of the war in Ukraine and the knock-on effects of the Covid-19 pandemic all contributing to a looming economic recession and an unprecedented cost of living crisis. So, how will the tech sector be affected?
Demand for IT
A global recession and the current geopolitical situation will undoubtedly hit global demand for IT. Difficult economic times means tighter technology budgets so businesses will be forced to carefully assess any tech spending plans and may be averse to implementing complex solutions that demand extensive capital investment. However, it is not all doom and gloom for tech. Savvy businesses will respond to the threat of recession and invest in innovative technologies to help them survive the storm. Areas such as AI, CRM, digital analytics; and digital marketing tools are likely to benefit as customers search for smarter cost-effective solutions and accelerate their digital transformation plans, turning to ‘as a service (aaS)’ technologies to save time, money and help them focus on their productivity and profitability in difficult times.
Investment in Tech
Investment in the technology sector is likely to be adversely affected by the current economic crisis. Tech companies used to be spoilt for choice when it came to attracting investment opportunities but hikes in the base interest rates in response to inflation increases means tech investors will be cautious about where they put their money. However, despite global economic uncertainty, investment in tech companies has remained resilient during 2022 so far. The hope is that there are still ambitious investors out there willing to take a risk on the next ‘big thing’. Recession will herald insolvency for companies with weak balance sheets and low cash reserves and there will be inevitable sell offs and mergers, so potentially some rich pickings for investors who have the appetite to snap up a bargain and who have the finance.
Employment and Salaries in the IT Sector
As the costs of running a business increase and profit margins are squeezed, tech companies are likely to restructure and attempt to streamline their business in order to survive. A huge rise in living costs means salaries are under pressure, entry level salaries are likely to stagnate and even the biggest salaries in the sector will be stretched. There is a fear that in this climate top tech talent will simply go to the highest bidder, meaning companies find it hard to maintain current staff and attract new talent.
The flipside of this of course, is that those IT professionals with the most in-demand skills will be highly sought after and be able to negotiate with employers desperate to onboard them.
Energy Crisis and Supply Chain
Businesses across all sectors rely on data centres to maintain their services, store internal and customer data and provide critical backup facilities. A constant energy supply is vital if data centres are to be kept operational 24/7.
Soaring energy costs and the threat of potential power restrictions or even outages could put large-scale data storage and processing services at risk and measures need to be taken to ensure that the technology that runs some of the most important public services such and financial and healthcare systems remains operational.
Talk of backup generators as a backup plan is generally thought to be expensive, impractical if not impossible, and certainly questionable in terms of sustainability given that this would rely heavily on diesel.
Increased energy bills mean that production and manufacturing costs are increased in many areas of the IT sector and the industry is experiencing supply chain issues and cost pressures on materials.
The current cost of living explosion, rising costs, supply chain disruption and impending threat of global recession mean that the IT industry will be faced with huge challenges in the coming months and years and is set to change enormously and rapidly. There will be winners and losers and businesses must react quickly to survive these very complex and difficult times.