Everybody expected the economic data in Covid-19 to be bad but it’s still a shock when you discover quite how bad.
The Uk’s OFfice of National Statistics (ONS) says UK gross domestic product (GDP) fell by 19.1% in the three months to May, before increasing by 1.8% in May, less than the five per cent expected. Manufacturing and construction were up a bit, which doesn’t help advertising and marketing that much.
Now the IPA agency trade body’s Q2 Bellwether report which measures marketers’ expectations – compiled by IHS Markit – has reported more carnage with total marketing budgets contracting at the quickest pace since data collection began over 20 years ago.
The net balance of firms that cut marketing budgets fell to -50.7% in Q2, down from -6.1% in Q1, with almost 64% of panel members having registered a decrease in spending compared to the first quarter, while only 13% posted an increase. These figures supersede the Report’s previous nadir of -41.7% evidenced in Q4 2008, following the global financial crisis.
IHS Markit now expects a -11.9% decline in UK with a matching 11.3% decline in adspend. It anticipates a robust recovery in macroeconomic conditions during 2021 as businesses move closer to operating at full capacity, translating into a predicted +4.9% expansion in GDP and implied adspend growth of +6.0%. Beyond that, it expects the economy to achieve above-average growth (from a historically low base) during a further recovery phase, before stabilising near long-run rates in 2024 and 2025.
So it’s pretty well doom, gloom and more doom despite the hoped-for recovery in 2021. that could be derailed, of course, by a further lockdown if some medics’ dire predictions of a second wave of Covid-19 this coming winter come to pass.
“While the future trajectory of the economy is unpredictable, however, that of brands starved of marketing investment is much clearer. Our evidence from previous recessions and periods of buoyancy consistently shows that cutting marketing investment weakens brands in the near-term and limits growth and profitability in the long-term.
“There are positive forecasts for a return to adspend growth in 2021 but a significant part of this coming to fruition hinges on the decisions companies make now. Ultimately, companies must invest in marketing in a recession in order to profit in a recovery.”
This may well be true but most of them don’t do it. The big ad holding groups are due to report their Q2 and half year figures imminently. They’ll almost certainly make grim reading and point to further savage reductions in headcount as the economic effects of the crisis stubbornly linger.