Adspend forecasts march 2018 executive summary

Pdf File 372.77 KByte, 12 Pages

Advertising Expenditure Forecasts March 2018

Executive summary

Zenith predicts global ad expenditure will grow 4.6% in 2018, reaching US$579 billion by the end of the year. This forecast is substantially ahead of the 4.1% growth rate we forecast in December, and is our biggest quarterly upgrade since March 2011. Several markets have surprised on the upside, most notably China, the Philippines, Argentina and Ireland.

We expect advertising expenditure to grow more slowly than the global economy as a whole out to 2020.

Growth of advertising expenditure and GDP 2017-2020 (%)

+5.5

+5.5

+5.6

+4.6

+4.4

+4.0

+5.6 +4.3

2017

Source: Zenith/IMF

2018 Adspend

2019 Nominal GDP

2020

Forecast by regional bloc

We regularly examine the growth rates of different regional blocs defined by the similarity of the performance of their ad markets as well as their geographical proximity. This captures the behaviour of different regional ad markets more effectively than looking at regions defined purely by geography, such as Western Europe, Central & Eastern Europe and Asia Pacific. See the end of the Executive Summary for a complete list of countries by bloc.

Growth in adspend by regional bloc 2017-2018 (%)

5. Eastern Europe & Central Asia 6. Fast-track Asia 2. Latin America 1. North America 8. Advanced Asia

3. Western & Central Europe 7. Japan 4. MENA -6.2

+4.4 +3.4 +3.2 +2.8 +2.0

+10.4 +8.7

Source: Zenith

1. North America North America was the first region to suffer the effects of the financial crisis, but it was also quick to recover, and adspend in North America was more robust than in Western & Central Europe between 2012 and 2014. This changed in 2015 as the European markets most

affected by the eurozone crisis recovered rapidly, while declining network television ratings eroded US adspend growth. North America started outperforming Western & Central Europe again in 2016 as political and economic uncertainty in the UK dragged down growth in the latter, and Canada's healthy economy boosted its ad market. We expect North American adspend to grow 3.4% in 2018, and forecast an average of 3.2% growth a year to 2020.

2. Latin America Argentina, Brazil, Ecuador and Venezuela (which accounted for 59% of Latin American advertising expenditure) were in recession in 2016, compounded by rapid devaluation in Argentina and full-blown crisis in Venezuela, which is running out of basic supplies and is heading for hyperinflation. Argentina and Brazil are now well out of recession, and Venezuela's sustained collapse in adspend means that its continued decline weighs less on the regional total each year. We forecast 4.4% growth in Latin America adspend this year, 5.1% next year, and 5.1% average annual growth to 2020.

3. Western & Central Europe Western & Central Europe was one of the regions most affected by the financial crisis of 2008-2009, which then turned into the eurozone crisis. The eurozone crisis is still not definitively over, but the region's ad market has been enjoying solid recovery since 2014, after which adspend grew at about 4% a year.

The UK was the stand-out growth market in Western & Central Europe from 2011 to 2016, growing at an average of 7.3% a year. However, a slowing economy, gathering inflation, and political uncertainty over the mid-year elections and Brexit negotiations have all contributed to a sharp slowdown in UK adspend this year, which grew just 0.8% in 2017. And although the eurozone economy picked up, the upswing was slow to feed through to advertising. Adspend grew 2.2% in Western & Central Europe in 2017, down from 4.1% growth in 2016. But we think this will be a low point, and expect an annual average of 3.2% growth to 2020.

4. MENA The drop in oil prices in 2014 has had a severe effect on the economies in MENA, and has prompted advertisers to cut back their budgets in anticipation of lower consumer demand. Political turmoil and conflict have worsened, further shaking advertisers' confidence in the region. We estimate that adspend dropped 18.6% in MENA in 2017, following 10.0% decline

in 2016. We do, however, think that was the low point for the region and expect successive improvement over the rest of our forecast period, forecasting 6.2% decline in 2018, just 0.3% decline in 2019 and 2.8% growth in 2020.

5. Eastern Europe & Central Asia Ad markets in Eastern European & Central Asia generally recovered quickly after the 2009 downturn and then continued their healthy pace of growth for the next few years. In 2014, though, the conflict in Ukraine severely disrupted the domestic ad market, while Russia suffered from sanctions imposed by the US and the EU, the sanctions it imposed in response, and a withdrawal of international investment. These shocks were exacerbated by a sharp drop in the price of oil ? which accounted for 70% of Russia's exports in 2014 ? and devaluation of the Ukrainian and Russian currencies.

Adspend shrank 0.6% in Eastern Europe & Central Asia in 2014, and by 8.0% in 2015. The worst-affected ad markets began to recover in 2016, however, and this recovery has continued in 2017, consistently outperforming expectations. We now estimate that adspend improved by 12.9% in 2017, and forecast 8.8% annual growth to 2020, ensuring that Eastern Europe & Central Asia remains the fastest-growing regional bloc over this period.

6. Fast-track Asia Fast-track Asia is characterised by economies that are growing extremely rapidly as they adopt Western technology and practices and innovate new ones, while benefiting from the rapid inflow of funds from investors hoping to tap into this growth. Fast-track Asia barely noticed the 2009 downturn (ad expenditure grew by 7.8% that year) and since then has grown very strongly, ending 2016 up an estimated 10.1%. This proved a tough comparison for 2017, when adspend grew by 6.8%, but we expect growth to rise to an average of 7.4% a year to 2020. This is less rapid than the growth in Eastern Europe and Central Asia, but Fast-track Asia is ten times larger, so contributes a lot more to global adspend growth.

7. Japan Japan behaves differently enough from other markets in Asia to be treated separately. Despite recent measures of economic stimulus, Japan remains stuck in its rut of persistent low growth. We forecast average adspend growth of 2.1% a year between 2017 and 2020, slightly behind the average annual growth rate of 2.4% between 2012 and 2017.

8. Advanced Asia Apart from Japan, there are five countries in Asia with developed economies and advanced ad markets that we have placed in a group called Advanced Asia: Australia, New Zealand, Hong Kong, Singapore and South Korea. Adspend grew here at 5.3% in 2015, the best performance since 2011, but has slipped back to an estimated 1.8% this year. We expect this to be the trough, and forecast 3.8% average annual growth to 2020, ahead of the 3.1% average growth rate since 2012.

Average annual growth in adspend by regional bloc 2017-2020 (%)

5. Eastern Europe & Central Asia 6. Fast-track Asia 2. Latin America 8. Advanced Asia 1. North America

3. Western & Central Europe 7. Japan 4. MENA

+8.8 +7.4 +5.1 +3.8 +3.2 +3.2 +2.1 -1.3

Source: Zenith

Of the various blocs, MENA is the clear underperformer, while the clear outperformers are Fast-track Asia and Eastern Europe & Central Asia. The other blocs range gradually from growing slowly (Japan) to solidly (Latin America).

Forecast by leading advertising markets

The US will be the leading contributor of new ad dollars to the global market over the next three years, making up in scale what it lacks in speed. China will come second, combining large scale and rapid growth (though its growth is slowing as its scale increases).

Between 2017 and 2020 we forecast global advertising expenditure to increase by US$77 billion in total. The US will contribute 26% of this extra ad expenditure and China will

contribute 22%, followed by Indonesia, India, the UK and Japan, which will contribute 4% each.

Seven of the ten largest contributors will be Rising Markets* (China, Indonesia, India, Philippines, Brazil, Russia and South Korea), and between them they will contribute 40% of new adspend over the next three years. Overall, we forecast Rising Markets to contribute 57% of additional ad expenditure between 2017 and 2020, and to increase their share of the global market from 37% to 39%.

Top ten contributors to adspend growth 2017-2020 (US$m)

USA China Indonesia India

UK Japan Philippines Brazil Russia South Korea

3,014 2,951 2,817 2,720 2,420 1,942 1,848 1,538

19,701 16,914

Source: Zenith

Download Pdf File