WORLDWIDE MEDIA FORECASTS This Year Next Year DEC 2018GroupM 3 World Trade Center 175 Greenwich Street New York, NY 10007 USA FOR THE FULL 70-COUNTRY FORECAST AND APPENDIX : ALL WPP EMPLOYEES: link to inside.wpp/marketing GROUPM CLIENTS: please speak with your client account director for the full data file or contact Brogan Laudat (Brogan.Laudatgroupm) EVERYONE ELSE: link to our sales portal groupmpublications or contact Brogan Laudat (Brogan.Laudatgroupm) WORLDWIDE MEDIA FORECASTS DEC 2018 This Year Next Year All rights reserved. This publication is protected by copyright. No part of it may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, mechanical, photocopying or otherwise, without written permission from the copyright owners. Every effort has been made to ensure the accuracy of the contents, but the publishers and copyright owners cannot accept liability in respect of errors or omissions. Readers will appreciate that the data is as up-to-date only to the extent that its availability, compilation and printed schedules will allow and are subject to change.INTRODUCTION 6 BRAZIL 12 CANADA 16 CHINA 20 GERMANY 24 INDIA 28 RUSSIA 32 UNITED KINGDOM 36 UNITED STATES 40 CONTENTS 5 | WORLDWIDE MEDIA AND MARKETING FORECASTS DEC 2018THIS YEAR NEXT YEAR 6 | WORLDWIDE MEDIA AND MARKETING FORECASTS DEC 2018 Introduction Our new forecast for 2018 advertising investment growth is 4.3% and for 2019 3.6%, both small downgrades from our midyear predictions of 4.5% and 3.9%, respectively. This seems consistent with a macro outlook that remains firm, but fraying into 2019. Commodities have been gaining since 2016, when good global demand has met limited capacity. HSBC calculates average prices rose 14% in 2017 and predicts they will rise 23% in 2018, then 6% in 2019. It believes USD 100 oil is a possibility, given the lack of slack. The main macro questions are tighter money, China growth, pricey oil and trade wars. Globally, real interest rates are rising, led by the Fed, whether the rest of the world likes it or not. But we are not yet in domino/contagion territory. The prospect of real recession is presently quarantined to the “fragile five”: Argentina, South Africa, Brazil, Turkey and Venezuela. On trade, export growth seems more liable to disappoint than at the time of our last forecast. Currency depreciation spurs exports if it advantages the exporter, but if all currencies fall in sync against the dollar, all boats are lowered, and we are reminded the USA remains the consumer of first and last resort. Oils rise this year will ripple inflation into 2019, but serious terms-of-trade damage is so far limited to the net oil importers nursing the most serious currency depreciation versus the dollar which, fortunately for advertising, does not include India, the third-largest contributor to expected advertising growth in 2019. We show spend by category in 2017 in this edition. The difficulty of knowing who is spending what inside the walled gardens limits the usefulness of this exercise, but note the apparent stress on autos. Dieselgate and China demand already made this a category to watch for 2019 before the US Dept of Commerce inquiry, which will report its findings on the cars and parts trade no later than February 17, 2019, following which the executive has 90 days to decide on 25% tariffs. As for CPG, this present sweep of our correspondents in 60 countries yielded no news of resurgent investment into traditional media. The developing world as we define it accounted for 60% of global economic growth in the decade to 2018. Worldwide growth is likely to be slower over the coming decade, but HSBC expects the developing worlds contribution to rise to 70%, reflecting catch-up potential, population (size and shape), human capital (education and health care), politics, openness and technology. Those with strong governance are more likely to see investment. The IMFs shorter five-year horizon to 2023, which we use in our model, has the contribution at 64%. But there is little doubt where the next billion consumers will arise. By 2013, HSBC thinks China will be the worlds largest economy, and India the third. In the decade 2009-2018e global ad investment rose $168 billion. The developed world furnished $76 billion of this, and the developing world the other $92 billion, or 55%. In our modeled figures in the five years to 2023, the developing world supplies 51%. This looks low compared to HSBCs 70% and the IMFs 64%. The advertising-to-GDP ratio in the developing world is, however, much lower than in the developed world: currently 0.54% of GDP to 0.79%, and both rates are falling. However, it is possible that rising consumer expectations in the new world will raise ad ratios. Chinas ad intensity appears to have peaked as long ago as 2006, when its investment-driven economy was a third the size. Today, Chinas consumer demand growth is at last faster than growth in fixed investment. In this sweep, more countries than usual left their prior ad investment forecast unchanged. A few made downgrades to 2019 worth noting. Canada reduced two points, from seven to five, with TV and especially print having a harder time. Turkey moves from positive 9% to negative 3% as real GDP tracks toward near-zero growth in 2019. China drops from 6.6% to 5.5% because of the wider economy, OOH growth pausing after a good run, and the slow-mo slowdown in expected digital growth. The MENA region drops from positive 2.2% to negative 3.8% as regional economic growth is expected to halve in 2019. A rising oil price would help Saudi Arabia stimulate its slow-growing economy, but geopolitics makes investment and a reform program uncertain. Turmoil in Egypt has also impaired advertising. THIS YEAR NEXT YEAR 7 | WORLDWIDE MEDIA AND MARKETING FORECASTS DEC 2018 Media summary 2011 2012 2013 2014 2015 2016 2017 2018f 2019f North America 164,992 171,262 176,284 181,330 185,507 194,670 198,458 205,963 210,872 YOY% 3.2 3.8 2.9 2.9 2.3 4.9 1.9 3.8 2.4 Latin America 19,201 20,646 24,218 25,565 26,987 24,768 26,058 26,954 27,964 YOY% 10.9 7.5 17.3 5.6 5.6 -8.2 5.2 3.4 3.7 Western Europe 93,104 90,218 89,036 91,493 94,325 97,503 101,057 103,853 106,346 YOY% 1.2 -3.1 -1.3 2.8 3.1 3.4 3.6 2.8 2.4 Central potential headwinds are October 2019s consumption tax rise from 8% to 10%, and Japans belated confrontation of value, viewability and verification problems in the digital supply chain. The UK remains in the table against expectations of Brexit calamity and consumer fatigue, propelled by colossal digitization that will now reach 61% of recorded ad investment in 2019 on our calculation, though we are seeing more year-on-year flat spots in the digital investment contours of larger advertisers. Another thing that keeps UK forecasts buoyant is its short-term flexibility: in an emergency, advertisers know they can turn the taps off quickly. Consumption and investment Worldwide investment spending grew a real 4.3% in 2017, revised down from 5%, as the famously synchronized global recovery did not Top contributors 2019 USDmm quite summon up the corporate spirit expected. Lower trade and perhaps higher oil appear to have robbed momentum, with the annual run rate currently struggling to stay above 4%. Even with tax breaks and strong GDP, US investment growth, excluding oil and gas, is running around 5% year-on-year, or about half the normal rate in recovery. The majority of US investment is also confined to a small number of companies in the tech and energy sectors. The Asia-Pacific average has slipped below 5% in 2018, where it is expected to remain in 2019, and Western Europe is similarly below 3%. Latin Americas fixed investment started shrinking in 2014, but stabilized in 2017 and is now recovering. Real global wage growth was 4.4% in 2017, and is accelerating to 5% in 2018. We might now see a clear picture of how late-cycle this cycle is, as employment is a good lagging indicator. We might also soon see if overmighty employers and merciless globalization have uninvented the wage-price spiral, as some economists think. Chinas investment spending growth rate has slowed to that of the USA, but its consumers are sustaining an impressive 8.5% annual run rate and India will probably beat that in 2018. Both will help support regional Asia economies, as could US demand diverted from China. Consumer spending is growing about 2% a year in real terms in the developed world, and around 5% in the developing world, for an average approaching 3%. That would be a respectable GDP growth path. It will not be the consumer that kills this recovery. INTRO 4,304 USA 4,841 China 953 Philippines 1,342 Japan 1,257 UK 1,358 India 451 Russia 483 Brazil 519 Australia 605 CanadaTHIS YEAR NEXT YEAR 10 | WORLDWIDE MEDIA AND MARKETING FORECASTS DEC 2018 GroupMs long-term forecast model has one principal independent variable: the IMFs calculation of each countrys share of global GDP at PPP . This is intended merely for scenario planning. GDP forecasts know nothing of structural changes in media advertising, so neither can this model. Long-term ad forecasts 2019f 2020f 2021f 2022f 2023f North America 210,872 218,785 226,708 234,383 242,230 YOY% 2.4 3.8 3.6 3.4 3.3 Latin America 27,964 29,801 31,886 34,060 36,352 YOY% 3.7 6.6 7.0 6.8 6.7 Western Europe 106,346 108,920 112,439 115,354 117,996 YOY% 2.4 2.4 3.2 2.6 2.3 Central & Eastern Europe 16,291 17,157 18,054 18,971 19,883 YOY% 6.0 5.3 5.2 5.1 4.8 Asia-Paci c (all) 195,504 206,848 218,102 228,850 239,229 YOY% 5.4 5.8 5.4 4.9 4.5 North Asia 106,681 113,923 120,266 126,137 131,624 YOY% 5.1 6.8 5.6 4.9 4.3 Asean 17,301 18,932 20,734 22,695 24,710 YOY% 9.6 9.4 9.5 9.5 8.9 Middle East & Africa 6,041 6,386 6,707 7,046 7,414 YOY% 0.4 5.7 5.0 5.1 5.2 World 563,017 587,896 613,896 638,664 663,105 YOY% 3.6 4.4 4.4 4.0 3.8 INTRO