According to a recent IDC study, demand for IT services will not show a major rebound in the next 12 months as a result of the slow recovery projected for European economies. Though demand is likely to remain flat in 2010, 2.2% growth is anticipated for 2011. Overall, the Western European IT services market is expected to grow at a compound annual growth rate of 3.4% between 2010 and 2014.

The economic environment in Europe is slowly recovering, and business sentiment continues to improve, with most companies cautiously optimistic about the year ahead. With the easing of economic conditions, companies are slowly starting to increase spend again.

IT budgets have stabilised, and in some cases show some growth, but strong price pressure will limit the market’s recovery capacity in the short term. Enterprise acceptance of offshoring will continue to drive project prices down, while virtualisation will put pressure on the value of the contract and partly offset market growth throughout the forecast period.

In 2011 and beyond, it is expected most companies to return to an ‘expansive’ mode and to expect IT to help them grow the business. With better economic and credit conditions, a number of organisations will be looking at how to better align their IT and corporate strategies as they prepare action plans to expand the business. The growth focus will again become predominant, though companies will remain cost-conscious and take measures to gain more value for the money spent on IT.

”Demand for projects and outsourcing will pick up towards the second half of 2010, though new technologies and strong price pressure will limit the market’s capacity to recover. Cost-driven initiatives will remain a high priority in the short term. We expect the ‘growth agenda’ to return slowly, bringing investments in business intelligence and industry-specific solutions, as well as the global rollout/integration of applications, when these solutions can support business growth, towards the end of the year,” said Laura Converso, research manager, IDC European Software and Services.

Overall, demand for IT services in the Nordics, Germany, and the U.K. will outperform the European average throughout 2010, as these markets recover faster. The U.K. and the Nordics have a higher propensity to outsource and are less exposed to time and materials (T&M) activities, leading to a faster recovery than in most southern European countries. Growth in France is expected to be in line with the European average, whereas Benelux, Italy, and Spain will continue to suffer in the next 12 months, performing below the market average.