British ad market to be impacted on long term by Brexit vote, says Zenith

Global advertising expenditure will grow 4.4 percent this year to reach USD 539 billion, ahead of the 4.1 percent previously forecast in June, according to Zenith’s new Advertising Expenditure Forecasts.

Advertising expenditure will then expand by 4.5 percent in 2017 and 4.6 percent in 2018 – up from the previous growth forecasts for both years, which were 4.3 percent and 4.4 percent respectively. By 2018 global advertising expenditure will total USD 589 billion, which is USD 4 billion more than the June forecast.

“The global ad market has strengthened over the past few months, thanks mainly to the resilient US consumer,” said Jonathan Barnard, head of forecasting at Zenith. “So far any impact from the vote for Brexit has been limited, and confined to the UK. We expect the global ad market to strengthen further in 2017 and 2018.”

The US, the Philippines and Western Europe drive faster ad spend growth

This upgrade is mainly the result of stronger-than-expected growth in the US, where a strong labour market has encouraged consumers to increase their expenditure, and advertisers have fought harder for their share of the expanding market. They expect US network TV to return to growth this year (at 1 percent) after shrinking 5 percent last year, thanks to new spending by pharmaceutical and consumer packaged goods companies and a strong upfront. They also expect social media to accelerate from 32 percent growth last year to 35 percent growth this year, as advertisers take advantage of new formats, such as in-feed video, and the transition to mobile internet consumption continues. Overall they forecast US ad spend to grow 4.4 percent this year, compared to our previous forecast of 3.8 percent.

The agency’s representatives have also made slight upgrades to ad spend forecasts for Asia Pacific and Western Europe. They now expect Asia Pacific to grow 6.3 percent this year, up from our previous forecast of 6.2 percent, thanks to heavy political spending in the Philippines in the run-up to the May 2016 elections. They have also increased our forecast for Western Europe, where improved conditions in Belgium, Finland, Germany, Italy, Norway, Portugal and Sweden have compensated for slowdown in the UK. They now forecast 3.6 percent growth in Western Europe this year, up from 3.5percent in June.

Long term impact of Brexit vote on UK ad market

Although the vote for ‘Brexit’ in the UK’s EU referendum came as a shock to many in the market, so far advertisers have reacted calmly, with no widespread budget reductions. They forecast 5.4 percent growth in ad spend this year, fractionally less than our 5.6 percent forecast just before the vote. As they have argued before, most of the impact that Brexit will have on the UK ad market will come in the long term. The UK’s new terms of trade with the EU and other countries – whatever they turn out to be – are likely to restrict flows of trade and investment in comparison with the pre-Brexit status quo, leading to slower economic growth and slower growth in advertising expenditure. In the short term, uncertainty about the consequences of the vote will make companies less likely to invest in new products, and consumers less likely to take on big spending commitments. This could lead to anything from disappointingly slow growth to outright recession. Zenith’s current forecasts assumes that economic growth will slow but remain positive, in which case UK ad spend will grow 3.4 percent next year, down from our pre-vote forecast of 4.0 percent growth.

Mobile advertising taking over from desktop even faster than expected

In June Zenith forecast that mobile advertising would overtake desktop in 2017. The agency still expects that to happen, but they have upgraded their forecasts for mobile growth for this year (from 46 percent to 48 percent) and next year (from 29 percent to 33 percent), and now expect mobile ad spend to exceed desktop by USD 8 billion in 2017, up from the USD 2 billion they predicted in June. By 2018 they expect mobile to account for 60 percent of all internet advertising, up from the previous forecast of 58 percent.

Desktop to shrink by more than newspapers or magazines to 2018

Desktop advertising peaked in 2014 at USD 99 billion and shrank by 0.1 percent in 2015 to USD 98.9 billion as advertisers switched their budgets to mobile. They expect the decline of desktop advertising to gain momentum over the next few years, with desktop ad spend falling by 0.8 percent in 2016, 2.9 percent in 2017 and 7.4 percent in 2018. Between 2015 and 2018 desktop ad spend will shrink by USD 10.7 billion, more than the other two declining media – newspapers (which will shrink by USD 9.6 billion) and magazines (USD 4.4 billion). Meanwhile, mobile ad spend will grow by USD 81.3 billion over the same period, seven times more than the combined growth of television (USD 7.3 billion), outdoor (USD 3.0 billion), radio (USD 0.9 billion) and cinema (USD 0.7 billion).

Romanita Oprea

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