Recession Fears Ease, but Challenges Remain

As recession fears recede, businesses brace for a potential downturn in 2024. The tech industry adapts to a new reality of slower growth, focusing on optimization and cost savings.

By Larry Walsh

The likelihood of a recession occurring in the next year has dropped below 50% for the first time since mid-2022, according to economists surveyed by The Wall Street Journal. This view aligns with that of The Conference Board, whose CEO Confidence survey reveals that 17% of corporate leaders no longer fear a recession and predict a shallow downturn and quick recovery — an increase of 10 points from the second quarter and 15 points higher than the 12-month low.

The easing of recession fears is positive news for the economy as a whole, but avoiding a recession doesn’t imply that economic challenges are diminishing. According to The Conference Board, 80% of business leaders — those investing in technology products and services — still anticipate that the United States will experience a shallow recession in 2024, but they expect the downturn to be brief with limited impact on the global economy. Only 4% of business leaders anticipate a severe recession.

Economists point to declining inflation, the presumed conclusion of U.S. Federal Reserve interest rate hikes, and robust job growth as reasons for the decreased likelihood of a recession. GDP growth is projected to be 2.2% for Q4 and 1.5% to 2% for full-year 2023. The unemployment rate is expected to increase to 4.3% by mid-2024, which is still historically low.

The current GDP forecast for 2024 indicates 1.5% growth for the United States, 1.5% for the eurozone, and 4.1% for China — sluggish by any standard measure.

Tech analyst firms Gartner and IDC predict that IT spending will have increased by more than 4% in 2023 compared to 2022. Spending, though, isn’t uniform. IT vendors and channel partners should prepare for a deceleration in tech spending growth over the next few years.

Hardware and device manufacturers have reported significant slowdowns in business and consumer spending. Some estimate that device spending has decreased between 6% and 8%, depending on the region.

Many vendors inform Channelnomics that they’re observing slow sales as the year draws to a close. Overall IT growth is fueled by the continued transition from legacy infrastructure to cloud services and service-based technology delivery models, but vendors report that businesses are more cautious with their IT investments and service providers are more selective with their spending.

For channel partners, slower growth in IT budgets translates into fewer opportunities for new sales. The focus will shift toward supporting and maximizing existing client investments. Companies will aim to extend hardware lifecycles and fund only critical projects with clear ROI.

Consultative selling and advocating cost savings will become increasingly important in this environment. Partners capable of helping customers optimize their existing resources will be valued. It will also be crucial to stay informed about new technologies and identify areas where innovation and upgrades can improve efficiency.

While demand won’t vanish, the tech spending boom of 2020-2022 has officially ended. Vendors and solution providers that adapt to this new low-growth reality will remain profitable. The reduced odds of a recession offer some reassurance, but discipline and optimization will shape IT go-to-market strategies in the coming years.

Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide. Follow him on Twitter at @lmwalsh_CN.