The ISG report points to the slowdown in managed services in Europe as the growth of AI-driven cloud demand and macroeconomic uncertainty goes on in the key markets of the region.

The latest Information Services Group (ISG) Indextm report, based on the data of the third quarter, showed a downturn in the technology services and software market of Europe. The analysis found that the integrated market, which is the sum of managed services and the cloud-based as-a-service services, increased by five percent every year to amount to US $9.7 billion.

Managed services were under severe pressure even though the performance has increased in the seven quarters. The report has indicated that there was a 25% decrease in annual contract value (ACV) to US $3.8 billion under which the company managed, and the volume of contracts decreased by 22 percent compared to the previous year. ISG explained the dip by the macroeconomic turmoil, tariff tension, and political risks that slowed the process of closing deals in Europe.

In managed services, there was a fall in IT outsourcing by 28% and business process outsourcing by 27%, but engineering and R&D services increased by 49% with increasing demand of AI. Industry-wise, manufacturing and power were growing, whereas there was a decline of 18 percent in BFSI.

ISG believes that managed services will record growth of only 1.3 percent in the world in 2025, all because of the Americas, and Europe is still lagging behind momentum. In a state produced by AI, Steve Hall, President, ISG EMEA, said, "AI is the growth engine." As long as the cloud is doing well, managed services are adjusting to the new economic circumstances.