Ad industry displaying ‘cautious optimism’ amidst economic uncertainty: GroupM

Global advertising growth is expected to be 3.2% lower in 2022 than forecast one year ago as investment is impacted by soaring inflation, Europe’s cost of living crisis and persistent lockdowns in China. 

GroupM has downgraded its global advertising forecast for 2022 for the second time, from 8.4% growth it expected in June, to 6.5%. It had originally forecast 9.7% in December 2021. 

The growth rate excludes the impact of U.S. political advertising which is expected to total $12.6 billion this year — down by $500 million from 2020’s presidential election year but up by 90% from the last midterm elections in 2018, according to GroupM.

GroupM’s global director of business intelligence Kate Scott-Dawkins said during a press briefing that 2022’s ad market will reflect “normalization” from the “whipsaw” of the prior two years, with growth rates being dragged down by tough comparables.

The global forecast is heavily influenced by performance in China and the U.S., which will collectively represent 55.5% of ad revenue in 2022, per GroupM’s estimates. 

China’s ad market was originally forecast to grow by 10.2% this year, but disruption caused by its zero-COVID policy is now expected to pull the market into a 0.6% decline.

The U.S. is expected to post 7.1% growth — down from the 10.1% growth rate forecast in June and 10.8% in December 2021.

Inflation and cost of living crises are weighing on the ad industry, but several factors suggest the downturn is not yet as severe as previous recessions.

While layoffs have spiked in the past few months, unemployment remains low in most large markets. As a result, consumers are still spending and bearing some of the inflation cost, allowing retailers and manufacturers to continue to grow revenue.

“Based on the fact that a lot of advertisers’ budget for advertising is a percent of revenue, as those revenues go up — albeit inflation boosted — so does advertising revenue,” said Scott-Dawkins.

In addition, declines in ad spend are not universal but limited to select advertisers, channels and markets, GroupM said. 

Of the 62 markets GroupM tracks, half have had their estimates downgraded from June forecasts, with 21 being upgraded and 10 staying the same.

The war in Ukraine has triggered steep energy cost increases in Europe that has a knock-on effect on consumer spending. As a result, Germany, France and the U.K. are expected to post negative ad growth in 2022. 

China will weigh heavily on global out-of-home (OOH) ad spend, which has been downgraded from 12% growth forecast in June to 2.2%. China’s OOH spend is expected to decline more than 34.3% as consumers have spent much of the year in lockdown. Excluding China, global OOH advertising would grow 18.1% in 2022, Group said.

Digital endemic brands that spent heavily in recent years, such as e-commerce and cryptocurrency companies, have witnessed a “significant deceleration” in sales and marketing expenses this year.

But Scott-Dawkins said some of the largest ad buyers she had spoken to planned to increase investment next year.

As a result, GroupM’s outlook is one of “cautious optimism,” with advertising revenues expected to “incrementally decelerate” over the next five years, slowing to 5.9% in 2023.

IPG Mediabrands’ Magna expects a steeper decline to 5% global ad growth in 2023 — from 7% in 2022.

GroupM expects digital advertising to grow by 9.3% in 2022, down from June’s 11.5% forecast. The fast growth of retail media, estimated to reach $110.7 billion dollars in 2022, will be offset by deceleration in search, video and display, expected to post mid-single-digit growth over the next five years.

TV advertising is forecast to grow 1.7% in 2022 and remain at a 1%-3% growth rate over the next five years as double-digit growth in connected TV narrowly offsets declines in linear TV in several markets.

Audio advertising is projected to grow 3.8% globally in 2022 and decelerate to 1.3% growth in 2023.