The Austrian IT market has shown better resiliency to the COVID-19 pandemic than initially projected in PAC's early predictions at the beginning of the first wave in March/April 2020. Even though overall economic output in Austria experienced a sharp slump in 2020 (GDP shrank by 7.3%, according to the WIFO forecast), according to PAC's estimates, the software and IT services market generated a total volume of EUR5,822 bn in 2020, with a growth rate of -0.8% compared to the previous year.
This forecast is also consistent with the findings from our annual survey, for which we interviewed over 100 Austrian CxOs. The increasing uncertainties in the global economy and the slight deterioration of prospects have forced many companies in Austria to be rather cautious with respect to their IT budgets. The majority of participants plan to increase their IT investments moderately and/or leave them at the same level as in previous years.
The pandemic has accelerated some aspects of digital transformation in many industries, such as e-commerce, banking & insurance, and manufacturing. Wherever possible, customer and supplier interactions have switched to digital channels, and staff have been working from home. This has had a positive effect on many sub-segments of both the software and IT services markets:
Providers with business around the digital workplace benefited in 2020 as demand for associated software licenses and the corresponding infrastructure, including VPN access and security solutions, has been given a boost.
Sub-segments such as SaaS, cloud outsourcing, and BPO, which have been historically underrepresented in the Austrian IT market, have experienced above-average growth over the past year. Companies expect to reduce their costs through outsourcing.
Similar considerations (cost reduction, focus on the core business) will also help cloud providers in the future. According to our CxO survey, the biggest challenges for many companies are mostly related to cost reduction and the establishment of new revenue streams (also through the development of new data-based services and business models). Technological topics such as data analysis and automation of work- and production-related processes often dominate both the operational implementation and the strategic orientation of many user companies.
Despite a strong dependence on the manufacturing and transport sectors, the overall economic structure of the country is quite broad and well-balanced, which has partly cushioned the negative impact of the restrictions imposed to contain the spread of COVID-19. The IT services sector accounts for the largest share of the Austrian IT market, at around 1.65 times the size of the local software market. In 2020, Austrian spending on IT services reached EUR3,622 billion; the software sector was worth EUR2,200 bn. For 2021, we expect growth of 5.1% for the entire SITS market. We expect the software market to grow by 6.4% (growth will be dominated by the strong SaaS sub-segment), and the IT services market by 4.3%.