United States tech sector faces soft patch after pandemic overbuild

Providers of technology services benefitted from the coronavirus pandemic. Structural changes impacted virtually all industries worldwide, causing investment into the sector to heat up. As a result, employment within the sector grew significantly. However, growth has cooled and the tech sector may have overestimated the market for IT services—according to our latest forecasts, by over $120 billion by 2030.

What you will learn:

• The IT sector provided a silver lining to the economic damage that pandemic-driven supply- and demand-side shocks had on the wider economy. Changes to working patterns and e-commerce prompted surges in demand for IT services. Investment into services that support business flexibility boomed and headcount in tech companies picked up as a result.
• Recently IT services activity has cooled. According to Oxford Economics’ latest forecasts, US business spending on technology products will fall during the recession forecast for the second half of 2023. The sector remains exposed to broader economic conditions, despite sectoral output becoming even more integrated into firms’ daily operations in recent years. Business investment is closely tied to IT services output and tightening monetary policy will put the brakes on short term growth. In our high inflation scenario, the cumulative loss to the market for US IT services is nearly $50 billion by 2027. Sectoral output falls more relative to baseline than GDP.