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Worldwide spending on IT products and services is projected to drop to $3.5 trillion in 2020, a decline of 7.3% from the $3.8 trillion spent in 2019, Gartner said on Monday. However, 2021 offers a brighter picture as the research firm is eyeing a rebound next year.

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Putting the blame for this year’s spending downturn on the economic effects of COVID-19, Gartner said that organizations will have to move away from traditional processes and focus more of their money and resources on digital transformation.

“Overall IT spending is still expected to sharply decline in 2020 but will recover in a faster and smoother manner than the economy,” Gartner research VP John-David Lovelock said in a press release. “Still, enterprises cannot return to previous processes that are now rendered outdated due to the disruption of their primary revenue stream during the pandemic. Specifically, CIOs with less immediate cash on hand should plan on becoming more digital than they had originally anticipated at the start of 2020.”

All of the five major IT segments will be hit by a decrease in spending this year, including data center systems, enterprise software, devices, IT services, and communications services. The most impacted segment will be devices as 2020 spending in that area is forecast to plummet by 16.1%. The shift to working from home triggered a temporary boost in device purchases, however, that spending isn’t likely to return to last year’s volume anytime soon.

Spending on data center systems is projected to fall by 10.3% this year, spending on IT services will drop by 6.8%, spending on enterprise software will decline by 5.7%, and spending on communications services will decrease by 3.3%.

Image: Gartner

As organizations start to enter a recovery phase from the effects of the pandemic, they’ll see a backlog of IT projects waiting to be completed but less money to complete them. CIOs will have to concentrate their budgets on such items as subscription products and cloud services as a way to lower upfront costs. As such, spending on Infrastructure-as-a-service (IaaS) is expected to rise by 13.4% to $50.4 billion in 2020, while investments in cloud-based teleconferencing will jump by 46.7% this year.

Looking at 2021, Gartner projects that IT spending will grow to $3.6 trillion, a gain of 4.3% from this year. Each of the five major segments will profit from a boost in spending, led by enterprise software with growth of 7.4%, followed by data center systems at 6.2% and IT services at 5.5%.

“With the easing of lockdown restrictions, many enterprises will soon return to a higher level of revenue certainty, allowing some cash flow restrictions to ease and CIOs to resume spending on IT again,” Lovelock said. “This pause and restart will push growth out of 2020 and into 2021. The smooth ‘swoop’ recovery of top line IT spending masks a very turbulent recovery across some countries, industries, and markets.”