Bank: “Media will be hit by recession”
July 11, 2022
By Chris Forrester
A report from investment bank Berenberg suggests that the “hopefully shallow” recession is definitely coming and will affect advertising – but that agencies will not be hit as badly as media.
Berenberg expects 2023 to suffer a full-year decline in ad-spend. “Our economics team now forecasts negative economic growth in major Western markets in 2023 and – while other major economies may be stronger (eg China, which should benefit from a post-lockdown reopening) – we forecast a 5 per cent decline in global media spending in 2023, reflecting the fact that the advertising market tends to overreact to economic downturns,” says the bank.
“In the last 22 years, the biggest downturn in the global advertising market has been in 2009, with a decline of 11 per cent. That represented just over 2x the change in global GDP. In 2001, when the internet bubble burst, the market shrank by 4.4 per cent, although the economy was actually only just in the red. In 2015, by contrast, a modest contraction in the global economy (concentrated in the emerging markets/commodities) was met by broadly flat advertising, reflecting the fact that advertising intensity was highest in those countries that were affected to a lesser extent,” the bank explains.
However, Berenberg warns that agencies will not be hit as badly as media owners. While much of the bank’s report focusses on the financial prospects for the likes of agency giants WPP and Publicis, and how a recession will likely affect players such as Google and Facebook.
The bank has cut its estimates for the agencies “to reflect a weaker economic environment and its impact on the advertising and marketing industries. Our economists now forecast a mild recession across the developed world, which is likely to negatively affect spending on advertising and marketing. Advertising agencies will be affected by this, but media owners will fare worse, we think, given the much greater fixed-cost operating leverage they have compared to the agencies.”