Dec 6, 2022 - Economy

Ad growth expected to slow further in 2023

Percentage change in advertising growth
Data: GroupM; Note: U.S. includes political advertising; Chart: Tory Lysik/Axios Visuals

Growth in global ad spending is going to be slower next year than originally anticipated, according to two new forecasts, a troubling sign for media and tech firms that rely on advertising to fuel their businesses.

Why it matters: Much of the slowdown is driven by economic uncertainty, rather than true economic indicators that would cause an advertising recession.

  • The ad market slowdown has caused a slew of U.S. companies to implement drastic cost-cutting measures, including sweeping layoffs.

Details: Growth in global ad spend is expected to slow to about 5.9% next year, according to media buying firm GroupM, down from 6.4% estimated in June.

  • Magna, a unit of Interpublic Group's Mediabrands, also reduced its forecast slightly. It predicted global ad revenue will grow 4.8% in 2023, down from 6.3% it had reported in June.

Between the lines: Inflation and various macroeconomic factors impacting the world's biggest ad markets are largely to blame.

  • In the U.S. — the world's largest ad market by far — inflation remains high, but recession indicators like high unemployment rates are absent. That's caused uncertainty, prompting ad budget cuts.
  • In China — the second-largest ad market — COVID lockdowns continue to deter its economy, and in turn, ad spend. In 2022, GroupM expects the Chinese ad market to shrink by 0.6% and then grow by 6.3% in 2023. That's down from previous estimates of 10% growth in December 2021 and then 3.3% in June.
  • European countries like Germany, France and the U.K. have seen declines in TV advertising. GroupM updated its June estimates from positive growth to now a decline, citing the war in Ukraine.

Yes, but: Factors contributing to economic uncertainty appear at odds with some of the broader economic progress, GroupM notes, which could provide some optimism amid the bleak advertising outlook.

  • While GroupM downgraded estimates in 31 of the markets it tracks, it increased forecasts for 21 markets and made no changes in the other 10, said Kate Scott-Dawkins, global director of business intelligence at GroupM.
  • "I assume some of that is inflation driven, but some others saw better results for the year than they had expected," Scott-Dawkins said. "We have heard from some of the largest advertisers that they are planning to increase marketing investment rather than reduce."
  • Certain sectors are doing well. GroupM updated its September forecast for retail media's 2022 revenue from $101 billion to $110.7 billion, and it expects connected TV to grow double digits over the next four years. The formation of new businesses is also driving more ad spending.

Be smart: An element of maturation among some of the world's biggest tech firms also could explain the deceleration in ad growth, GroupM said.

  • "When capital was very cheap and interest rates were low" some companies spent upwards of 50% on advertising or even more than 100% in a given quarter, Scott-Dawkins said, but that's now decelerated or even declined as interest rates climb.
  • "A real theme as we go into the end of the year is that normalization ... to just how strong Q2 and Q3 were in 2021," Scott-Dawkins said. "I think once we lap that and get into next year, we're looking to see more normalized growth rates."

The big picture: Not all advertisers respond equally to economic uncertainty.

  • Consumer packaged goods companies and financial firms may slow down marketing spending next year, Magna said, whereas entertainment, travel and betting will continue to grow.
  • "Automotive is a big question mark due to the uncertainty in macroeconomic environment and supply issues, but Magna believes ad spend will finally start to recover in 2023," the report said.

Editor's note: This story has been corrected to say GroupM expects the Chinese ad market to shrink by 0.6% in 2022, not 0.06%.

Go deeper