2016 tech forecast shows that when China sneezes, the world catches a cold

Worldwide growth of tech goods is slowing in 2016, thanks in no small part to a slowdown in China. That’s the forecast from a key research analyst in advance of the 2016 International CES.

In 2016, global tech spending is expected to be at $950 billion, down 2 percent from a year ago, owing to weakness in China and other regions, as well as a strong dollar.

Steve Koenig is senior director of market research at the Consumer Technology Association, the group that puts on CES, the big tech trade show that’s taking place in Las Vegas this week. The CTA pulls together data for North America, while GfK gathers data on the rest of the world, monitoring tech spending across seven major regions.

The data are normalized to the U.S. dollar, which has been strong in the past year, causing U.S. products to become more expensive. The U.S. is doing reasonably well in gross domestic product growth (at 2.1 percent in the third quarter), which translates into roughly flat tech sales in North America. China continues to be weak, while Japan is narrowly avoiding recession. Overall GDP growth for the world is moderate, though uneven, as some countries have slowed down more than others.

Looking at the big picture, Koenig predicted unit sales of tech goods will be flat at 6.4 billion units. Within that framework, U.S. tech sales are expected to hit $93 billion in 2016, up 1 percent from a year ago. Mature markets will account for about 51 percent of sales in 2016, compared to 49 percent for developing markets.

Koenig sees tech innovation as the key to the future: “Make no mistake, nascent categories will help usher in the next generation of global growth.”  New categories being tracked include wearables, smart homes, drones, 3D printing, and virtual reality. Wearables alone are expected to grow 59 percent to become a $25 billion business — dominated by smart watches — in 2016.

Startups are behind this growth. At CES this year, about 500 companies will be exhibiting in the Eureka Park section for startups, up from 375 a year earlier.

Categories that currently drive sales include smartphones, tablets, and laptops. Telecom accounts for 47 percent of all global consumer tech spending, largely because of the growth of smartphones. Smartphones and tablets together account for 46 percent of predicted sales for 2016. About 1.4 billion smartphones will ship in 2016, up from 1.3 billion a year earlier. (Keep in mind that there are only 7 billion people on the planet.)

At the same time, average prices for smartphones will drop 7 percent in 2016 to $283, down from $305 in 2015. While 56 percent of households have tablets, sales of new tablets are expected to drop from 192 million in 2015 to 176 million in 2016. One of the trends hurting tablets is the larger screens on smartphones. “I think we’ll see a lot of value tablets on the show floor,” Koenig said.

In TVs, sales will likely drop slightly from 232 million units sold in 2015 to 230 million in 2016. One of the reasons for this is the rapid drop in plasma TV sales, as well as satiated demand for big-screen TVs, particularly in areas where smartphones can do the job just fine. The average TV size is expected to be 42 inches, up from 40 inches last year, and about 21 percent of screens will be 50 inches and up. Roughly 21 percent of all TVs sold will be 4K Ultra HD TVs (48 million units).

Unfortunately, China is expected to grow only 6.5 percent in 2016, down considerably from years past, and down from its 7 percent growth in 2015. Latin America is expected to inch up 0.8 percent in regional GDP in 2016, but the market has been weak, in part because of spillover from China’s slowdown. And Eastern Europe is experiencing weakness because of the crisis in Ukraine. On the upside, India is growing quickly, at 7 percent GDP growth in 2016, though that’s down slightly from 2015.