How European Tech Spend Will Bounce Back in 2024

Last year was undeniably challenging for the European tech market, with several adverse factors, high inflation and energy prices, persistent supply chain issues, and an uncertain job market.

These challenges culminated in a modest tech spend growth of only 2.6 per cent in 2023, according to Forrester forecasts.

However, the economic outlook for 2024 appears much brighter. Recovery in real incomes, easing inflation, lower energy prices, diminishing supply constraints, improved business confidence, and a stronger job market are all expected to contribute to a more robust economic environment. Forrester anticipates that these factors will drive European tech spending to bounce back significantly, with a projected growth rate of 5.1 per cent in 2024.

Forrester forecast analyst Michael O’Grady reveals the factors that will help the European tech market flourish in 2024.

Software Growth -

A major driver of this growth will be the surge in software investment. For the next year, enterprise and government software spend in Europe is expected to increase by over 10 percent, accounting for more than half of the overall tech spend growth in the region. Notably, off-the-shelf AI software investments in countries like Germany, France, Italy, Spain, and the UK are projected to grow at an annual rate of 21 percent from 2023 to 2030.

Investment in software is crucial as it drives higher-value economic activities. Countries with significant finance, professional services, and information and communication sectors tend to allocate more of their gross fixed capital formation to intellectual property products, including software.

IT Service Growth -

The IT services sector is also expected to experience robust growth in 2024, rebounding from the gradual slowdown seen in 2023. This growth will be fueled by increasing enterprise digital maturity, heightened focus on cybersecurity, and ongoing digital innovation. Furthermore, computer service exports to the European Union from countries like the US, the UK, and India will further bolster IT service growth.

EU Rights, Regulations, and Fair Market Competition -

Regulations and fair market competition will play a pivotal role in fostering tech market growth in Europe. The European Commission's AI Act, for instance, will impose obligations regarding human oversight, safety, privacy, transparency, nondiscrimination, and social and environmental wellbeing. Additionally, the EU’s Data Act aims to prevent enterprise vendor lock-in from cloud data-processing services on connected devices. The European Commission is also finalizing regulations concerning data center sustainability and energy efficiency.

At the national level, various regulatory measures will further support market growth. In the UK, Ofcom is expected to regulate hyperscaler cloud market dominance, facilitating easier switching between cloud providers for enterprises. In Germany, the competition watchdog Bundeskartellamt is considering investigating Microsoft for potential anticompetitive practices that might restrict cloud adoption choice within the country's digital ecosystem.

Innovative High-Value Activities and Digital Maturity -

The tech market outlook for 2024 will also benefit from higher-value business activities and enterprises with greater digital maturity. For instance, over a quarter of the economies in Ireland and Switzerland are dedicated to high-value activities, with more than a third of their gross fixed capital formation invested in intellectual property products.

Digital maturity is another key factor, as enterprises with higher digital intensity are more likely to invest in technology. Countries like Sweden, Finland, and the Netherlands, which have the highest share of ICT specialists in their workforce, demonstrate this trend. Cities like Helsinki, Stockholm, and Amsterdam, known for their abundant tech talent, further underscore the importance of digital maturity. Digital firms are generally more productive, resilient to economic shocks, and engaged in international trade.

The push for digital maturity is evident in the European Union’s allocation of €400 million to the Digital Europe work program in 2023, with plans to increase this funding by 30 percent in 2024.

A Promising Outlook -

As the European economy stabilizes in 2024 and beyond, the tech market is expected to witness significant growth, more than doubling its rate from the previous year. This resurgence will be driven by a combination of improved economic conditions, strategic investments in software and IT services, supportive regulatory frameworks, and a focus on high-value activities and digital maturity. The future of the European tech market looks promising, setting the stage for sustained growth and innovation.