Market Updates | 10th June 2022

Anticipating a slight slowdown in the rate of growth

2021 was a year of exceptionally high growth across the professional services sector, the result of a combination of pent-up demand left over from the previous year and strong client confidence that translated into high levels of overall investment. A year on, economic forecasts are darker as post-COVID shocks merge into geopolitical uncertainty and spiralling inflation.

How are these trends likely to play out where professional services are concerned?

Throughout this year, we’ve been gathering data on the extent to which clients think that their expenditure on consulting services—which is a good bellwether for other parts of the professional services industry—will change in the next 12 months. Comparing that to the equivalent data gathered last year suggests the following: Clients remain broadly positive about their use of consultants, with 52% saying they expect to spend more as opposed to 47% who anticipate their expenditure remaining the same year-on-year, and just 1% who think it will fall. This is marginally less positive than it was last year, when 55% thought their expenditure would increase and 42% that it would contract.

There are, however, variances by geography. Sentiment in the UK market is more positive: Worries about the impact of Brexit at the start of 2021 morphed into determination in the face of the latter’s challenges and the optimism generated continues this year, with 47% of clients saying their expenditure will increase, compared to just 36% 12 months ago. On the other side of the world, clients in SE Asia are also more positive: 56% expected their spending on consultants to grow, up from 42% last year, perhaps buoyed by an Omicron wave that proved less problematic from a business point of view than anticipated. Meanwhile the views of clients in Germany, Switzerland, and Austria haven’t changed much: Around 48% expect to increase expenditure on consultants. But in every other geography we’ve surveyed the proportion of clients saying they expect to spend more has decreased. In the US, for example, which accounts for more than 40% of the global professional services market, the percentage of clients saying they’ll spend more has fallen from 68% to 55%. This doesn’t, however, mean that the percentage saying they’ll spend less is higher: What’s grown is the proportion who say that their expenditure this year will be broadly the same as last year’s—in the US, this has risen from 31% of clients to 45%.

From interviews with clients, it’s clear that political and macro-economic uncertainty, combined with the threat of high inflation, is slowing investment decisions and will, in some cases, result in planned-for initiatives being repurposed and rescoped. But there is no evidence yet of these concerns escalating to have a more negative impact on demand. Following on from an exceptional 2021, when the global professional services market grew by 11%, the prognosis for 2022 is that growth rates will remain higher than their historical average (the 7-8% range), but not quite at last year’s exceptional level. Currently, we’re forecasting 10% growth in 2022.

How are these trends likely to play out across different parts of the professional services market? The chart below compares the growth potential of different professional services in 2021 (the horizontal axis) to the actual growth in 2022 (the vertical axis). Please note that the services are ranked in terms of most to least likely to grow: Their position on the axes is reflective of actual growth rates. The size of the bubble reflects the market size. In the bottom, left-hand corner, therefore, are the services that we think not only grew strongly last year but are likely to grow similarly well in 2022.

Although relatively small in absolute terms, the deals market has the highest overall growth potential, largely fuelled by exceptional growth among PE firms. The strong showing business process outsourcing, especially this year, is a testimony to how the pandemic changed organisations’ views: Rather than make permanent, structural change to their businesses, many companies chose to downsize on a temporary basis, by sub-contracting functions to third parties in the belief that these activities can be scaled up as some parts of economic life return to their pre-crisis form. Real estate is another beneficiary of post-COVID change, with the 2020 slump in professional support being replaced by restructuring as more people work from home and physical space starts to be used in different ways. Some of the biggest markets—systems integration, technology, risk, and cybersecurity—are still likely to grow at above average rates. And, given their size, this will translate into sizeable growth in absolute terms. However, other professional services markets—research, for example—which saw a significant boost last year as organisations struggled to understand “the new normal”, are starting to return to more traditional growth levels.

All in all, we should expect the second half of 2022 to see the market continue to grow, but more slowly than last year. But growth is likely to be more unevenly distributed. 2021 was a classic example of how an incoming economic tide raises all boats: 2022 is more likely to see some boats rising faster than others.

If you are a journalist or work for a news organisation and would like to reference our data, please get in touch with David Pippett at david@proservpr.com