For much of the second half of 2022, there was growing consternation in adland about the potential impact of a 2023 recession—which, according to some business media, seemed to be a certainty.
But the latest numbers from the major holding companies suggest that the outlook is considerably brighter than it was just a few months ago.
While it doesn’t match the same robust performance of the past two years, as the industry—and the global economy—rebounded from the devastating impacts of the 2020 recession, the forecast is for growth: Interpublic expects organic growth of 2% to 4%, while Omnicom and Publicis both predict organic growth of 3% to 5%.
WPP presented its numbers on Thursday, and it too expects growth of 3% to 5% this year. “We’re looking at a much better pattern of client spending than people feared,” said CEO Mark Read.
There are certainly plenty of macroeconomic and socio-political variables that could disrupt the rest of the year, not least of which is inflation. Publicis Groupe CEO Arthur Sadoun touched on this when discussing the company’s outlook earlier this month: “It’s very difficult in an inflationary world to preserve your margin when you’re in a business like ours, because you can’t pass your inflation costs to the client,” he said.
A “catastrophe” would change things, said Read on Thursday. “But I said back when we did our [third-quarter] results, I don’t think this is going to be a catastrophe… And I still have that view: There’ll be a slightly softer landing.”
So if that’s the global outlook, how are things in Canada? The Message reached out to 20 agency media and creative agency leaders from across the country to ask how they are doing, and gave them permission to speak anonymously in exchange for honesty.
From the nine that responded, the overall outlook can be characterized as cautious optimism mixed with the sense that things aren’t as bad as they feared coming into the year.
“We saw a dip in Q4 last year and I was concerned that it would carry over and possibly get worse,” said one creative agency president, adding that they are very busy at the moment. “So I’m happy with how things are going.”
“As we look ahead I’m—if not bullish—quite optimistic that the potential downturn in client spend will be less severe than it could have been, if we see a meaningful one at all,” said another. “So far we’re seeing spending levels hold—it varies a bit by category, but in general, it feels like there’s consensus building that we’re in for a shorter and shallower period of stagnation than could have been the case.”
“For the most part, we’re seeing a real surge of optimism and opportunity from many of our clients,” added the president of one of Toronto’s larger agencies.
However, if things have started off well, there is still caution about the second half of the year.
“What I’m sensing right now is there is some hesitation,” said Stephen Brown, CEO of Fuse Create in Toronto. Everybody is being careful not to overspend, and there’s been “some light pullback” on budgets, but for the most part projects and programs are going ahead—with caution. “It’s almost like a hold and see, but let’s keep moving forward on key initiatives,” he said.
“While we see some softness in some clients’ back-half anticipated spend, I think it’s more about them seeing how the front half plays out,” said one media agency executive. “If it goes as we expect, then the back half should be fine, too.”
The outlook also varies by category, with the tech sector making headlines for recent layoffs. “Right now, I don’t see any significant movement, but I’m still cautious,” said Sid Lee CEO Martin Gauthier. The technology sector has cut spending, while other clients are starting to show some caution and “projects are slipping,” he said, but “nothing catastrophic for the moment”
“I don’t foresee big growth for our industry in 2023,” said Gauthier. “Stability for sure and possibly a slight decline.”
The uncertainty in the industry reflects the larger macroeconomic uncertainty. “I think the notion of a recession is something that I’ve never seen so hotly contested,” said Jared Stein, president and CEO of The Hive. “Depending on who you ask, we’re either in a recession, coming out of a recession, or about to head into one.
“What everyone can agree on is consumer spending is being scrutinized and discretionary income is at an all-time low,” he said. “Trying to fight for those dollars and justify to consumers ‘why spend on us’ is at all-time high. Brands should be investing now, or risk missing an opportunity to align themselves with consumers.”
“We just can’t predict or forecast the next six months,” said another CEO. “It’s like we’re all driving in the fog.”
“Up until the past few weeks we have felt very sheltered from economic uncertainty, and in some cases reduced investment/spend,” said the president of another of Canada’s largest agencies, adding that larger clients, at minimum, maintained their budgets coming into 2023. However, he said they have noticed a very “slight softening” of spend with a few clients. “[I]t isn’t significant cuts that are altering our staffing or planning, but have got us thinking, is this the start of something more?” he said.
But even if it is the first sign of “something more,” Fuse’s Brown said the ad industry can handle it—especially after the extraordinary challenges of the pandemic. “Everyone’s being a bit cautious, but it’s not like other recessions,” he said. “And it’s definitely not like March 2020.”