What does advertising spend tell us about the global economy?

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Advertising expenditure is a traditional bellwether of economic growth and business confidence, with spending correlating with GDP closely over the last decade (see Figure 1). Dentsu Aegis Network’s latest ad spend forecasts depict a world that is experiencing the headwinds of political and economic uncertainty—for example, ongoing Brexit negotiations in the United Kingdom and the rise of protectionist rhetoric and policies in the United States. However, against that backdrop, our numbers also reveal a world that continues to embrace the potential of digital technology, as new types of advertising overtake more traditional approaches. 

A cautious 2017 outlook

In 2017, against the backdrop of geopolitical turbulence and economic uncertainty, our advertising expenditure forecasts point to a more cautious outlook than the previous year, with growth in advertising expenditure falling from 4.8% in 2016 to 3.8%. This forecast, based on data received from 59 markets around the world, amounts to a global market size of approximately US$563.4 billion. Looking ahead, conditions are set to improve in 2018 with forecast ad spend growth of 4.3%, driven by event-related ad spend such as the Winter Olympics & Paralympics in South Korea, the FIFA World Cup in Russia and the US Congressional elections.

UK and US continue to grow

Despite concerns about the economic impact of Brexit, UK ad spend held up better than expected with 6.1% growth in 2016. While 2017 shows growth dipping to 4%, 2018 is forecast to bounce back to 5.9%. Similarly, advertising expenditure in the United States (the largest market in the world in terms of share of global advertising spend) fell to 3.6% in 2017 but is forecast to show a slight improvement in 2018 to 4.0%. Reflecting the long-run trend of shifting poles of economic influence, emerging markets continue to power the ad spend market. India is the fastest growing market globally at 13.0% in 2017, with Vietnam, Philippines, Indonesia and China also leading the way. While many of these fast-growth markets are relatively small, China is the second largest market for ad spend globally.

An unconscious decoupling?

Looking ahead, however, there is the possibility that the traditionally strong relationship between ad spend and GDP could start to weaken. As global brands move away from large-scale, expensive campaigns and focus more on the new potential of digital and data to enhance the efficiency and effectiveness of marketing spend, the sensitivity of ad spend to market conditions could decline. For example, the shift to people-based marketing that targets specific individuals rather than broad demographic groups will allow many brands to manage their budgets far more effectively than before.