Why GroupM is lowering its global ad market outlook

GroupM predicts the global ad industry will grow more slowly than previously thought this year and heading into 2023, largely due to a deceleration in digital advertising revenue and the economic impact of China’s continued COVID-19 lockdowns and protests. 

The WPP-owned agency now expects the international ad industry will grow by 6.5% in 2022, excluding political advertising, down from the 8.4% growth it forecasted in June, according to its new end-of-year ad forecast.

In 2023, global advertising is expected to grow 5.9%, with gains in connected TV, retail media and in markets like India, which is a downgrade from the 6.4% estimate in June. 

IPG Mediabrand’s Magna also reduced its 2023 forecast slightly, predicting 4.8% growth, to $833 billion. It had predicted a 6.3% growth in June, which was attributed to the deteriorating macroeconomic outlook. For 2022, Magna expects ad revenue to grow by almost 6.6% to $795 billion thanks to cyclical spending from U.S. and Brazilian elections, the Winter Olympics and the FIFA World Cup, down from its summer forecast for 2022 growth of 9.2%.

The biggest factor in GroupM's lowered outlook is China, which is still suffering economically from the fallout of COVID-19 lockdowns and protests. It now expects China to decline by 0.6%, after predicting a 3.3% increase. U.S. growth for 2023 is now pegged at 7.1%, down from 10.1% in June, excluding political advertising. Combined, the two markets are expected to make up 55.5% of all advertising revenue in 2022. 

But the lower 2022 and 2023 global ad revenue growth forecasts aren’t necessarily portents of doom. In a GroupM press briefing, Kate Scott-Dawkins, global director, business intelligence, attributed the shifts to the continued shakeout from the pandemic and the ongoing recovery.

“I think that's a real theme as we go into the end of the year is that normalization,” she said, adding that growth in the second and third quarters of 2021 was quite strong. “It's a really tough comparable for the companies we track in terms of their advertising revenue ... so I think once we lap that and get into next year, we're looking to see more normalized growth rates as well.”

In the same vein, digital advertising revenue is decelerating; GroupM now expects a 9.3% increase in digital advertising in 2022, compared to the June forecast of 11.5%. This would follow 31.9% growth in 2021 and bring the overall share of digital advertising to 67% of the industry total this year. GroupM expects that share to rise to 73% by 2027.

Retail media is the fastest-growing segment and is expected to reach $110.7 billion this year, up from GroupM’s estimate of $101 billion from its September commerce and retail media networks forecast. “We're really seeing that being a big growth driver globally,” Scott-Dawkins said. “It is a bigger and bigger component for a lot of these CPG companies ... and we’re seeing it become a larger and larger component of their media budgets.” 

After a contentious midterm election, 2022 saw U.S. political advertising add $12.6 billion dollars to the overall industry, which is only $500 million behind spend for the 2020 presidential election year and up 90% over midterm elections in 2018. 

TV advertising is expected to grow 1.7% this year, buoyed by double-digit growth in connected TV, as linear TV declines in most of Western Europe, the U.S., China, Malaysia, Taiwan, Singapore and most of Latin America. GroupM predicts that by 2025, all pay-TV providers combined will reach fewer than half of homes in the U.S.

The out-of-home ad market is still recovering from the pandemic, and is expected to grow 2.2% globally this year. Excluding China, GroupM predicts 18.1% growth. GroupM expects the out-of-home market to bounce back, returning to pre-pandemic levels in 2024, with some markets like Brazil, Australia, France and the U.S. already above 2019 levels.