As we navigate the complexities of the global economy, the most recent tariffs imposed by the US on China have introduced new variables into our forecasts. The current IDC forecast of 9% growth includes the impact of the additional 10% tariffs levied last month. While the consensus was that these initial tariffs would have a limited net impact on overall spending, they have caused competitive disruption and created additional risks for consumer spending. We’ve already seen signs of weakness in consumer spending, which increases the risk of a downturn lasting into CYQ2.
We will be factoring the tariffs announced today into our forecast, if they stay in place, with the potential impact being more significant than last month’s tariff actions. The downstream impact is lower GDP forecasts by the end of March for the U.S economy. The duration of these tariffs, along with other factors like currency and interest rates, will play a crucial role in the impact on this year. Some economic indicators for Q1, especially consumer confidence, are already starting to deteriorate.
The obvious downside risk of these tariff actions is that a prolonged trade war could add to existing pressure on consumer spending and trigger a U.S. recession, as consumer goods are heavily impacted by the most recent tariffs. Recently, IDC published a new downside scenario illustrating the potential impact on IT spending, with most of the impact on devices and IT services, while infrastructure and software remain more resilient.
IDC’s baseline IT forecast is currently at 9% IT spending growth in 2025, with a prolonged trade war downside scenario of 4% growth. Within this range, the highest likelihood is that PC and smartphone demand would see the quickest declines, with early estimated potentially bringing the baseline down to 6-8%, followed by impacts on services and other segments if the trade war continues.
An unlikely downside scenario exists where a recession triggers a rapid reduction in AI interest, negatively impacting server and storage server spending. However, the risk of this scenario remains low as all indications are that hyperscale suppliers will continue to double down on spending plans to support AI workload. To that point, we are expecting about 20% revenue growth in server and storage spending this year, on the heels of the 50+% growth that we saw last year.
On the other hand, there is an upside scenario where IT spending growth could reach double digits again in 2025, driven by new trade agreements, falling inflation, and deregulation. However, this scenario is currently less likely due to the current policy direction.
Overall, we see far more downside pressure on our IT forecast because of the tariffs, but it might take until the middle of 2025 to fully play out. Even with the reality of tariffs, many businesses are holding off on making major buying adjustments. Given this uncertainty, our forecast range is unusually large and reflects policy uncertainty and will likely be biased to the downside unless policies change in the near term.
Conclusion
The impact of tariffs on IT spending is a rapidly evolving issue. While our baseline forecast remains at 9% growth for 2025, the potential downside risks from prolonged trade tensions and economic uncertainties could significantly alter this outlook. We believe businesses are currently in a wait-and-see mode, and the full effects of the tariffs may take a few months to manifest. As this fluid situation evolves it is crucial for companies to maintain agility and hedge against the impact that will come from continued varied scenarios.
Customers need to be proactive and adaptable in navigating this uncertain landscape. As stated earlier, the current IDC forecast of 9% growth includes the impact of the additional 10% tariffs which the US levied on China last month. At that time, we forecast that those initial tariffs would have a limited net impact on overall spending. These actions will cause competitive disruption in the supplier landscape (not all vendors are impacted equally), and this turn of events has created some additional downside risk for consumer spending going forward and some “buy forward” activity in anticipation of tariffs coming into effect, which creates more of an overhang for the remainder of the year.
We believe today’s tariff announcement, if they stay in place, increases the risk of a downturn in consumer spending lasting into Q2, which would increase the likelihood of a downward revision to IDC’s IT forecast to the midpoint of our 4%-9% growth range for total IT in 2025.
Crawford Del Prete and Stephen Minton contributed to this blog.
