IAB Europe’s Chief Economist Daniel Knapp shared the outcome of his analysis of the current C-19 crisis and its impact on the ad industry. A few factors point to the fact that this crisis will exceed the impact of the financial crisis of 2008/2009. For example, consumer confidence, while relatively stable for a while, is likely to plummet in actual numbers during Q1/2 2020. Ad spend, as Daniel explained, is strongly correlated to economic growth, including not only GDP but also other factors such as consumption and industrial production. Also, the effects in ad expenditure are often amplified. Therefore, if one or more of these factors take a hit, advertising expenditure usually takes an even stronger hit – but the amplification goes both ways. Therefore, people’s ability to consume goods and services and the return to business of small and medium-sized enterprises (SMEs) will be critical to the recovery of the sector. However, with the situation being so dynamic it is difficult to make assumptions about the length or path of the downturn. Also, digital ads, which have been less impacted by the crisis, have rather been useful for big companies, while SMEs struggled to expand their presence and reach online.
Daniel went on to present 4 scenarios of where the crisis could go, based on learnings from the last three major crisis of the European market in the past 20 years: The DotCom crash, the financial crisis and the Eurozone crisis. Taking into account unemployment, we can expect most markets in the EU to suffer GDP declines – in most cases in the double-digit range. Yet, some sectors have experienced positive growth on e-commerce during the crisis, such as grocery, food delivery and gaming, while others, such as fashion, suffered. Travel, hospitality, and automotive count among the worst affected sectors.
Scenario 1 (baseline) After a deep contraction in 2020 across all digital media and a rebound in 2021, as of 2022 we will see a gradual recovery in line with pre-crash GDP growth and the market. In a second scenario, we will see the virus strike again in 2021, not allowing the industry to fully recover but increasing in the single or double-digit domain. The third scenario predicts a longer outbreak in 2020, assuming that the situation will not change much and that we need a longer recovery. In the fourth scenario, we are looking at a longer outbreak in 2020 and a new outbreak in 2021 and therefore, a much deeper recession. We will witness a slow recovery for a couple of years and a stronger rebound in 2024.
The recording and slides are available here.