GroupM Global Forecasts: futures director Adam Smith provides some background to the numbers

GroupM’s expectations for the global advertising economy are slightly more bullish than those released by Zenith yesterday, predicting a 5.8% increase for 2011 (Zenith: +4.6%). GroupM says 2010 will finish up 5.9% (Zenith: +4.9%).

Global advertising spending in measured media is expected to exceed $500 billion for the first time ever next year following an economic recovery that also sparked significant ad spending increases in 2010.

Commenting on the numbers, GroupM futures director, Adam Smith said:

“The outlook for 2011 ad investment is 5.8% This would produce a global total of just over USD500 billion, a memorable milestone, but still below the 2007 peak in real terms. This is again only just in line with IMF-predicted nominal GDP growth: ad outperformance is typical in recovery, but only when the consumer is ready to spend and borrow, not save.”

Smith admits that the ad recovery has been a surprise this year, and that it was a “further surprise to see how broad-based it was.” He singles out auto and finance spending – which “accounted for around a quarter of growth in media occupancy.” In the “new world” personal care and beverage contributed about a third of monitored growth.

“With no improvement in the macro outlook – the contrary, in fact, with inputs rising and western household income falling – we approach 2011 with unexpected momentum and predictions of modest growth in all but the most benighted countries. ”

Nations expected to contribute the largest dollar amounts in 2011 ad spending growth are the U.S. and China, each with at least $5 billion, followed by Canada, Russia, Indonesia, India, Brazil and Japan, each expected to add $1 billion-plus in spending growth.

The broad picture might look like this according to GroupM:

Smith added: “Western Europe faces the heaviest headwinds as consumers are weighed down by austerity measures and in the case of the periphery a forced march back to competitiveness by way of lower living standards (unless pre-empted by default or exit from the single currency). The US was unusually becalmed in 2009, and the best example of how this time, thanks to oppressed consumers, steep recession did not turn into steep recovery. We think the US ad market rose only 1% in 2010, with a lot of help from th auto recovery and from the mid-term elections – but even that modest single digit would be a five-point improvement on our despairing forecast of a year ago. We think America’s 2011 will look different as corporates restore general investment, which fell further and faster than just about anywhere, from ample reserves. We predict only 3.7% US ad growth, but this will (if our prediction proves correct) amount to USD5 billion in new investment, larger even than China’s contribution. This is the law of large numbers at work.”

GroupM chief investment officer Rino Scanzoni commented further on the US recovery: “Television and online media have been the primary beneficiaries of the rebound in spending. In television, the growth is driven by local TV as political advertising-coupled with the resurgence in growth from the retail and auto categories-has risen from the historically depressed levels of 2009.”

Elsewhere growth in the BRIC countries is well into double digits, and might contribute about a third of all new ad dollars, according to the report.

“All countries feeding China are doing well, and even Japan has picked up for the first time in five years, even if this has relied as much on government intervention as the undoubted improvement in Japan’s profits. More mature countries such as Canada, Australia and Sweden have also benefited hugely from their freedom from serious public debt. China is pinpointed as still “the most reliable contributor to total ad growth”.

The report reveals that digital media outlets are challenging newspapers as the world’s number-two preferred medium (behind television) in measured advertising investment. Measured internet advertising is expected to contribute 37 percent of global ad growth in 2011 and is likely to reach $82 billion, a growth rate that suggests it will overtake newspaper spending (forecast at $90 billion in 2011) at some point in 2012.

“Internet spending may indeed already have eclipsed newspapers if one allows that measured internet ad investment does not include substantial advertiser investment in content creation, search-engine optimization and analysis,” commented Smith.

He concludes: “There remain risks to these forecasts as usual. We might be being too cautious again, but this is less likely given the restoration of media pricing to something like normal levels. We would sooner enumerate the risks to the downside: advertisers might grow more cautious, or prioritise promotions over advertising. The macro picture presents the risk of Eurozone instability or even annihilation, and, equally seriously,everyone needs to float us off the rocks of excess debt. These risks are we think reasonably discounted in the new forecasts.”

GroupM forecasts are based on an aggregation for 70 countries.