Blockchain technology to face severe short-term challenges, as global economy recovers

As global vaccination regimes and stimulus programs begin to hit beleaguered populations, the worldwide economy licks its wounds and readies up for acceleration, following the profound halt caused by the pandemic.

According to the International Monetary Fund (IMF), both factors mentioned will push growth to a record high this year in a powerful rebound from the pandemic recession.

The 190-country lending agency said earlier this week that it expects the world economy to expand 6 percent in 2021, up from the 5.5 percent it had forecast in January. It would be the fastest expansion for the global economy in IMF records dating back to 1980.

In 2022, the IMF predicts, international economic growth will decelerate to a still strong 4.4 percent, up from its January forecast of 4.2 percent. “A way out of this health and economic crisis is increasingly visible,” IMF chief economist Gita Gopinath told reporters.

But as the global economy dusts itself off, pessimism remains high among chief information officers (CIOs). As companies revisit their investment spending plans, its little surprise that IT budgets are being reprioritized.

According to a recent report by Research and Markets, IT budgets – which in the pre-pandemic period was projected to grow by over 5.5 percent to 6.8 percent – supported largely by enterprise software spending are now set for sharp downward revisions.

This downward revision comes even though the pandemic has set into motion a digital transformation wave.

“While emerging technologies like AI, IoT, automation, big data, and blockchain will benefit in the post COVID-19 period as essential technologies to have to ensure resilience to future disruptions, they currently come under the non-essential bracket especially for companies struggling to survive and remain afloat,” the report highlighted.

With that in mind, the blockchain technology market is expected to face severe short-term challenges in the year 2021.

Virtually every technology company is facing financial challenges of disrupted supply chains, business opportunities, and low consumer demand for goods and services. Inability to meet quarterly revenue targets translates into reduced available funds for planned IT projects.

According to the Research and Markets report, over 45 percent to 55 percent of CIOs expect negative impact on IT budgets in the range of -10 percent to -40 percent as compared to the less than 20 percent who expect spending to increase.

“Excluding automation, cloud computing and technologies for remote working which are high priority as businesses come under pressure to enable WFM and remote operation to ensure business continuity, all other IT spending are being slashed. Blockchain technology will witness decline in all application areas, industrial and non-industrial sectors,” the report said.

However, it won’t be all doom and gloom for CIOs for long. 

The global market for blockchain technology is projected to reach $30.7 billion by the year 2027, trailing a post COVID-19 CAGR of 43 percent over the analysis period 2020 through 2027.

“While blockchain is witnessing dwindling investments, these glitches are likely to be transitory and the technology is anticipated to spring back relatively quickly than other legacy options,” Research and Markets noted.

Blockchain technology is estimated to witness the highest level of spending over the coming years owing to its intriguing characteristics like redundancy, decentralization, and transparency. These aspects are bound to push blockchain adoption across a diverse spectrum of domains, from financial services and healthcare to supply chains, the report highlighted.

The technology is expected to experience increasing interest and spending across various applications and industry verticals for addressing concerns associated with traditional options, enabling companies to gain an edge over competitors.

“Blockchain has become an integral part of business-to-business and business-to-consumer commerce, products, and legal processes. The technology holds significant potential for prescription management, medical data, online shopping, and other areas,” the report explained.

While the tech will be put to use in a myriad of ways, it will likely help companies in controlling supply chains, achieving traceability of products, and maintaining auditable record of goods movement. “Blockchain is anticipated to present new opportunities for participants to manage supply chains, track insurance records and verify medical data,” Research and Markets said.

Despite certain degree of reluctance, blockchain technology is poised to find increasing acceptance across manufacturing and professional services companies in the post-pandemic era. The tech is estimated to receive a notable investment of $14.4 billion globally by 2023.

The manufacturing and resources sector is estimated to register the fastest growth of 60.5 percent in terms of blockchain spend, followed by the distribution & services sector, which is forecast to post a solid CAGR of around 58.7 percent.

“Despite modest level of risks across majority of industries, blockchain-related deployments are slated to increase in the professional services, healthcare, manufacturing and retail industries owing to the requirement for coordination through the value chain,” the report forecasted.

The U.S. is anticipated to remain at forefront of blockchain spending.

Following slowdown, blockchain spend in majority of regions is likely to increase notably over 2018-2023, with Europe leading from the front with a CAGR of more than 63 percent. Asia-Pacific is estimated to contribute nearly 19.3 percent of the total spending on blockchain technology in 2021, Research and Markets analyzed.

The technology is anticipated to receive a major stimulus from increasing focus of various countries in Asia-Pacific to improve existing payment techniques and maintain records associated with regulatory compliance.