GroupM's 2022 Forecast Is Rosier Than Expected, but Not Great

Excluding U.S. political advertising, advertising revenue grew by 6.5% in 2022, according to WPP media investment arm GroupM's 2022 year-end "This Year Next Year" forecast. The U.S. market fared better than the global market this year, with 7.1% growth and $305 billion in revenue. The numbers don't indicate economic prosperity by any means. In fact, they're lower than expected, considering GroupM's June mid-year forecast had projected ad spend would grow by more—8.4%—in 2022. But deceleration is not the same as decline, and the projection places the advertising industry in a reasonably healthy position amidst an economic downturn. A recent study from the World Federation of Advertisers (WFA) and Ebiquity shared a similarly positive prediction. Advertisers' economic concerns have mounted in recent months, as industry layoffs suggest marketers are constricting budgets. But based on the group's data, it's more likely that a spooked industry is preparing for stagnation. GroupM's relatively good 2022 outlook might be reassuring to some of these downtrodden advertisers, but based on this data there won't be a respite from this situation in 2023. How 5 Agency CEOs Are Preparing for a Likely Recession What's clear is that this 2022 ad spend slow down correlates with global economic and political turmoil, and that these forces influence marketers' spending choices—especially in some markets, like China. GroupM based its relatively optimistic outlook on a number of select findings: Large ad spend declines were limited to certain markets and are not reflective of the overall industry's health, large advertisers are still growing revenue, unemployment remains low, new business opportunities remain steady and digital media is still growing. If marketers can recognize that exceptional ad spend growth in 2021 was an anomaly, they can then view this year as having more "normalized growth rates," according to Kate Scott-Dawkins, global director, business intelligence at GroupM. Ad spend slinks along Last December, the GroupM forecast painted a picture of a prosperous year, with ad spend having surged. Excluding political ad spending, GroupM’s 2021 “This Year Next Year” global end-of-year forecast measured 22.5% global growth in media ad revenue and indicated the industry would see 9.7% growth in 2022. The 2021 estimates put advertising revenue at about $766 billion, and projected that number would reach $1 trillion by 2025. At that time, Brian Wieser, global president, business intelligence at GroupM, told Adweek that the advertising industry was in a "ridiculously healthy state." The reality this year is far less rosy, even if the situation isn't as bleak as it could be. "The headlines were all quite dire and expecting recession, and a lot of the largest ad sellers were talking about pullback. We wanted to see whether that was really what our data was telling us," said Scott-Dawkins. Notably, ad spend hasn't actually declined since 2020, when it dropped by 5.8%–and even that was better than many analysts thought it would be at the time. But marketers shouldn't expect things to get better next year. Ad spend will decelerate two years in a row, according to the group, which forecasts just 5.9% global growth in 2023. It points to a slow and steady race to the bottom. Digital is reaching a peak Another significant report finding is that digital advertising investments continue to grow faster than overall investments but are likely to slow soon. This should surprise no one, since digital investments now represent the majority of total ad spend investments. For example, while digital grew by 31.9% last year and represented 67% of total ad spend in 2022, it's projected to take until 2027 for it to grow its share of ad spend to 73% of the total. Compare this to the 60.5% it accounted for in 2020 and it's clear digital is soon to reach its peak. Retail media is posing a significant threat to other digital players, and is projected to to reach $110.7 billion in 2023, making it the fastest-growing digital investment channel. Another relatively new advertising bucket—connected TV—should see double-digit growth next year and account for one-third of total TV spend by 2027, as it continues to nab dollars previously allocated to those linear investments. Television advertising as a whole will grow by 1 to 3% over the next five years, reflecting how much dampened linear investments pull down the category as a whole. In 2022, the U.S. and China markets predictably accounted for the majority of revenue—a whopping 55.5% of the pie. But this year, spend in China declined by 0.6%, pulling down the global growth rate. In fact, if China were excluded from this forecast, global ad spend would be 8.1%, a percentage that comes much closer to GroupM's June estimate and reflects a far healthier ecosystem. GroupM estimates that the Covid-19 pandemic continued to plague the Chinese market this year, leading to this outcome. Should new policies in China invigorate its economy, the group projects the market will see 6.3% growth in 2023—a potential bounce back for the country.