ICT industry trends show that the information and communication technology markets face a favorable outlook, tempered by downside risks
The world’s Information and Communication Technology (ICT) industry fared well during the height of the pandemic and is continuing to face a largely positive outlook. Working from home, e-learning, digital health and online shopping drove demand during the pandemic lockdowns, resulting in strong growth for sales and production, as well as increased profit margins for ICT businesses. Although the double-digit growth seen during the onset of the pandemic is predicted to slow over the next few years, the outlook for both short term and longer-term growth remains robust as businesses continue to invest in ICT and undergo digital transformations, and new growth sectors emerge such as electric vehicles.
The global output of high-tech goods is expected to achieve solid growth rates over the coming years. This includes 6.0% growth predicted for 2023 and a more modest 3.3% forecast for the years 2025 to 2029. However, as outlined in the June 2022 Atradius report, Industry Trends: Information and Communication Technology (ICT), high inflation and interest rates, further waves of Covid-19, the war in Ukraine and geopolitical tensions all present downside risks to growth.
Strong sector performance underpins growth forecasts
During 2021, the global ICT industry subsectors reported strong output growth rates including 10.4% for telecommunications, 4.2% for computers and 19.6% for electronic components. The Indian ICT industry performed extremely well, with the computers and office equipment subsector seeing 28.7% year-on-year growth in 2021. Growth in the same subsector is expected to taper off sharply this year before increasing to an average 10.9% growth next year.
Although individual percentages vary from country to country, this general pattern is reflected in the outlooks for all of the major ICT markets. Businesses in the ICT sector benefitted from a lockdown boom in ICT sales and production and now, despite facing a rapid slowdown, remain in a strong position on the back of good profit margins. This is especially true for B2B markets, where ongoing demand is being driven by businesses undergoing digital transformations.
US, EU and China invest in ICT technologies
In recognition of the importance of the highly value-added semiconductor segment, expanding chip production is a strategic priority for both the US and EU. The US Congress recently passed a “Chips Act”, designed to support and stimulate domestic semiconductor production. Likewise, the EU Commission announced it will invest EUR 45 billion in chip-related R&D, infrastructure and production. This focus is likely to support the growth of the ICT industry and related high-tech segments such as electric vehicles.
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Digital transformation is a core economic target mentioned in China’s latest Five-Year Plan (2021-2025). A stated aim is to boost China’s global competitiveness in advanced technologies with a focus on semiconductors and artificial intelligence. A commitment to digital transformation is also likely to drive future growth in India.
Semiconductor supply issues present ongoing downside risk
Chips are needed in everything from computer electronics to electric vehicles. Recent supply issues have affected the market. The worst of this seems to be over as semiconductor producers are increasing supply. As more supply comes on board, so ICT production should grow.
However, downside risks remain with the war in Ukraine and geopolitical tensions in Taiwan. Ukraine is the world’s largest producer of semiconductor-grade neon, a key component in chip production. Taiwan is the unrivalled leader of the semiconductor industry. Any escalation of the current tensions in the Taiwan Strait could severely affect chip supply for chip-consuming ICT segments and other industries across the world.
Increasing inflation and interest rates squeeze spending power
Inflation is rising throughout the world. The cost of food and fuel are reaching record highs, putting pressure on the spending power of consumers. Longer lasting inflation could lead to a decrease in sales of electronics and high-tech goods, as consumers direct their pay packets towards feeding their families and heating or cooling their homes. Increasing interest rates are adding further pressure to many consumers as mortgage rates increase. Rising interest and deteriorating investor sentiment is also likely to put pressure on ICT investment.
Geopolitical issues are impacting the ICT industry. In the US, both the Trump and Biden administrations imposed regulations aimed at preventing Chinese companies from acquiring US semiconductor manufacturing technologies and equipment. What’s more an escalation of the current tensions in the Taiwan Strait could severely affect semiconductor supply for chip-consuming ICT segments and other industries across the world.
The Atradius report, Industry Trends: Information and Communication Technology (ICT) provides insight into the recent performance and current forecast of the world’s major producers and consumers of ICT, along with a general credit risk assessment. Using weather forecast icons, the report presents an at a glance view of the economic outlook for each market, along with a short narrative offering additional detail.