A deceleration in global advertising growth should be generally unsurprising, given the economic environment. The global economy weakened in 2019 and will remain similarly soft in 2020.
Despite South Africa’s slowing economic growth, it is expected that the country’s advertising market will grow in 2020, albeit at a slower pace than the global average.
The gross domestic product (GDP) of the countries GroupM tracks in our worldwide media forecasts report ‘This Year, Next Year’ grew by only 2.6% in 2019 in real (inflation-adjusted) terms, based on Refinitiv data. Growth in 2020 is expected to be similar (2.5%), with only slightly faster growth (2.8%) in 2021 and beyond. For reference, 2.5% would be the slowest pace of growth in any non-recession/non-recovery year over the past two decades.
Global advertising, excluding US political advertising (large enough to distort global growth rates by +/-1% each year), expanded by 5.7% during 2018, capping the third year better than 5% growth and the best year of the current economic cycle.
However, 2019 appears set to grow nearly a percentage point slower at 4.8%, and growth is expected to slow by another percentage point in 2020 and 2021. We forecast 3.9% growth in 2020 and 3.1% growth the following year. Growth is expected to range between 3% to 4% right through to 2024.
We estimate that the total global advertising market during 2020 will amount to $628 billion as we define advertising here, but would likely approach $700 billion on a broader definition that includes spending on direct mail and directories around the world.
Digital first brands
Notably, a substantial share of global advertising is now accounted for by digital first brands that are endemic to the internet. Based upon their securities filings, we can see that Alibaba, Alphabet, Amazon, Booking.com, eBay, Facebook, IAC, JD.com, Netflix and Uber are each now $1 billion+ advertisers, accounting for $36 billion in spending during 2018, up by a quarter over 2017 levels; growth in 2019 was presumably very similar.
Adding a couple dozen companies from the next tier of comparable marketers would easily add tens of billions of dollars of additional activity. Combined, this small group of companies accounts for a majority of the world’s growth in spending on advertising. To the extent that these companies tend to take shares of consumer spending from others and do not directly cause the global economy to expand, at some point their growth converges with global averages, resulting in slowing growth in spending as well.
In South Africa GroupM forecasts that the advertising market will grow with 2% in 2020 to $1.3 billion, after declining with 1.6% in 2019. We forecast growth of 2.4% in 2021 and 2.5% in 2022 in the local market.
The impact of US adspend
The US remains the largest global advertising market, with $246 billion in advertising as we define it here, and growing above global averages. With nearly 40% of the world’s total and a still-robust advertising market in 2020 and beyond (at 4% – 5% growth excluding directories, direct mail and political advertising), the US is helping raise global averages. However, our forecasts anticipate a slowing economy as well as the gradual maturation of the digital brands that have driven so much recent growth.
China’s $90 billion media market is maturing and beginning to slow, but is still more than two times the size of the number-three market, Japan. After many years of rapid growth, China is now solidly the world’s clear number-two market for advertising, with 16% of total media-owner ad revenue, nearly matching the country’s 17% share of global GDP. However, macroeconomic concerns are weighing on growth this year and beyond and we forecast growth of only 3.7% in 2019 and 1.4% in 2020.
In territories’ where the economic growth is stronger than advertising growth, those markets may offer disproportionate benefits for shifts of ad budgets from global companies across countries.
Over the next five years, the widest gaps of this nature among the world’s 20 largest economies are found in China, Switzerland, Mexico, Brazil and South Korea. Where economic growth is weaker than advertising growth – and unless there are meaningful changes in trends in media consumption or ad inventory management – those countries may be relatively less effective places to spend. The widest gaps of this nature among the top 20 markets include Indonesia, the UK, India, Italy and Canada.
Federico de Nardis is CEO of GroupM Africa. Prior to this, he spent seven years at Maxus, where he was named Chairman and CEO, Maxus Italy in 2010, and was promoted to CEO of Maxus EMEA in 2012. De Nardis has history with GroupM, where he worked for their dedicated venture with Fiat, named MC2, for four years. He also spent time at Alchera Group, Fiat and Saatchi & Saatchi earlier in his career.
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