Global Advertising Slowdown Predicted

Last month, Credit Suisse put out an in-depth report (5/21/08) revising its estimates downward and forecasting only modest growth in advertising spending worldwide for the next 2 years, with the United States and most other developed nations dragging the trend downward. Given the broader economic slowdown underway brought on by the credit crisis, this was not news to anyone, nor is it shocking to see that the bright spots were again China and India; however, the in-depth analysis of the individual trends and mediums was very illuminating. Most stunning is the firm's quadrennial comparisons and historical trending.

In summary, the team had this to report:

 

The overriding factor influencing our current global advertising forecasts is the economic downturn triggered by the subprime crisis in the US. Despite quadrennial benefits in the world’s largest advertising economy from a Presidential election, a summer Olympics and European Football Championships, advertising growth of just 1.4% is forecast compared with 8.5% in 2004 and 12.5% in 2000 when these events previously coincided.

 

Mapping out global advertising and GDP growth since the middle of the last century, they show the direct correlation between the two.

Interestingly, Credit Suisse is forecasting stronger growth in the U.S. in 2009 against a more muted tone worldwide, despite those major catalysts being absent from the landscape next year. This is driven primarily by significant increases in internet advertising spending, but referring back to their chart correlating GDP growth and ad spending, it could also potentially be signaling that the current broader economic trends we are experiencing in the U.S. may not be long lasting. There is no doubt about it though - for significant growth, one must look internationally for the foreseeable future.

Other highlights of the note include:

 

Despite their relatively smaller size, we estimate that developing markets will contribute 50% of world advertising growth in 2008F. The divide between slow growth developed markets (US, most of Europe, Japan) and fast growing developing markets (Asia Pacific and other emerging markets) has widened over the past 12 months. US growth is forecast at just 1.4% while China growth is expected to be 26%. While growth expectations in North America and Europe have slowed significantly, those in Asia Pacific and Rest of the World have been maintained or increased.

In developed markets, Internet remains the key growth driver, with global Internet advertising forecast to grow 24% in 2008F after 27% in 2007. The Internet’s growth sees it achieving 10% global ad share in 2007, forecast to grow to 12% in 2008F. For the world’s three largest advertising economies (the US, Japan and the UK), Internet growth keeps headline advertising growth in positive territory; traditional media are forecast to deliver negative growth for the second consecutive year.

Our European team favors exposure to the global advertising agencies due to their ability to benefit from the stronger advertising growth in emerging markets. In addition, their media neutrality protects them from the audience fragmentation and market share shifts which is depressing traditional media companies.

 

Any way you slice it, the numbers in the U.S. and worldwide look much better than we saw during the last major economic decline at the early part of this decade with nowhere near the declines that occurred in 2001. It should be interesting to see how this plays out over the coming quarters, and if these forecasts suffer any dramatic year-end reductions as media planners firm up their 2009 spending plans.

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