Citing 'Fragile' Economy, GroupM Now Expects Advertising To Be 'Neutral To Negative'
- by Joe Mandese @mp_joemandese, September 4, 2019
Characterizing the world’s economy as “fragile” and showing “mild fractures,” WPP’s GroupM Business Intelligence unit issued an update to its periodic tracking of economic indicators warning advertisers to be prepared for a “downturn.”
“Concerns have risen around the health of the global economy since we published the mid-year update to our global advertising forecasts at the beginning of June,” Global President-Business Intelligence Brian Wieser writes in the warning, noting that most of the world’s major economies have since published economic growth estimates for the second quarter suggesting they are either flat or declining.
Wieser’s analysis includes macro data such as GDP (gross domestic product), as well as PCE (personal consumption expenditures), retail sales and industrial production, the latter two which he says “correlate more hihgly with advertising” growth.
“Key economic variables so far in 2019 are generally negative,” Wieser concludes, emphasizing, “retail sales and industrial production appear more unambiguously negative versus last year’s levels. Again, these variables tend to be more tightly correlated with advertising because marketers spend on advertising in alignment with the pace at which they make things or sell things.”
The effect likely signals that ad spending will be “neutral to negative versus last year,” but he also offered a potential silver lining, noting that “marketers can still look for opportunities in a downturn.
“In a full economic downturn, advertising growth will generally decline, but not necessarily in every country nor in every medium. This can present opportunities. As we have written previously, global markers with flexibility to shift marketing budgets across countries may find opportunities to redeploy resources from countries with weak economies and strong media markets to those with relatively stronger economies and weaker media markets, as marketing dollars may go further in those instances. More generally, as we can anticipate that most marketers will cut their spending, marketers with the flexibility to do so could benefit from maintaining or increasing spending given the relatively inexpensive opportunities to raise ‘share-of-voice’ that would exist under these circumstances. An economic downturn environment may, in fact, provide marketers and opportunity to grab greater share.”
Joe, I realise that you are merely reporting the data in the report, but the Australian data bears no resemblance to the official Bureau of Statistics data.
For example, yesterday our annual GDP was released with an annual growth of +1.4%, the lowest since the GFC. Retail sales for July was -0.1% with four of the six broad industries and six of the states/territories all falling.
@John Grono: I see your point -- https://tradingeconomics.com/australia/gdp-growth-annual -- and I'll check with GroupM about it. We'll update it accordingly. Thanks for pointing it out.
Thanks Joe. Maybe it was a typo and they mean Austria! (Not that I have any idea as to how Austria is travelling economically).
@John Grono: Re. Austria -- not so good:
https://tradingeconomics.com/austria/gdp-growth
@John Grono: This just in... GroupM's Brian Wieser explains the disparity:
Regarding GDP and PCE, the first thing I’d note is that it’s important to note my numbers are actual figures, year-over-year on a nominal (not inflation adjusted) basis, not annualized nor “real” (inflation-adjusted) which economists would typically reference and which gets picked up in the business press. That explains much of the difference. I try to focus on nominal year-over-year data not seasonally adjusted where possible to produce numbers which can be compared to marketer spending or media owner ad revenue
With the new GDP update for Australia I just pulled the data again right now - https://www.abs.gov.au/ AUSSTATS/abs@.nsf/DetailsPage/ 5206.0Jun%202019?OpenDocument(series A2302467A for GDP on Table 1, for instance) and I calculate +5.1% growth for 1Q19 and +5.2% growth for 2Q19. For PCE I calculate +3.4% growth during 1Q19 and +3.2% growth for 2Q19.
The retail data is a simple average of data as captured by Refinitiv (formerly Reuters terminals) using code auRSLY=ECI
I am not a buyer. From my analyst based in online advertising and promotions, business are spending a ton more now because to the mid December China trade traiffs increases. I don't see the car going over the cliff per say. I do see a reevaluation of 2020's products and models that might last a longer than normal. This doesn't mean a massive slow down.
Thanks Joe & Brian.
I'm still confused about the growth figures. The last four quarters of the first table on 5206.0 show Real GDP growth at +0.3%, +0.1%, +0.5%& +0.5% for YOY +1.4%. That is, the value of production is adjusted for in-built price increases (labour and inputs). It however does not adjust for population growth (i.e. it is not per-capita real GDP growth) which shows per-capita Real GDP as -0.2%.