Publicis Sees Ukraine War Weighing on Advertising Growth

The firm said it reduced its projections because of the sharp cuts to advertising in Russia and neighboring countries. Since the war began in February, hundreds of companies such as

McDonald’s Corp.

,

Anheuser-Busch InBev SA

and

Netflix Inc.

have suspended their businesses in Russia or pulled out entirely from the country.

The conflict has had a chilling effect on advertising spending in the region, something that many tech companies including Facebook parent

Meta Platforms Inc.

noted in their most recent quarterly earnings. Zenith estimates that Russia’s invasion of Ukraine will lead to a 26% decline in ad expenditures in Central and Eastern Europe this year.

Still, Zenith expects overall ad spending to be buoyed by the Beijing Winter Olympics, the midterm elections in the U.S. and the soccer World Cup in Qatar, events that all attract significant amounts of advertising.

“We expect a strong year of growth,” said Jonathan Barnard, Zenith’s director of global intelligence.

Analysts and observers have grown increasingly worried over the past few months that the global advertising market could falter due to macroeconomic headwinds such as high inflation, supply-chain problems and higher commodity prices.

Those fears were ratcheted up after retailers such as

Walmart Inc.

and

Target Corp.

posted weaker-than-expected quarterly earnings and most major digital-ad players reported a notable slowdown in ad-revenue growth during their latest earnings reports. Social-media giant

Snap Inc.,

which generates most of its revenue from advertising, recently warned investors that its second-quarter revenue and earnings would be lower than expected because the macroeconomic environment had deteriorated further and faster than the company had expected.

Despite these headwinds, ad spending has “remained on track,” Zenith said. The firm expects ad spending in North America to grow by 12% to $332 billion this year.

Zenith attributes the ad market’s resiliency partly to consumer spending, which continues to grow, as people are looking to travel and enjoy entertainment such as going to the movies, experiences that they missed during the global pandemic.

“Some consumers are reassessing where their budgets are going given the rapid rise in prices for energy and food, but overall consumer spending has maintained because a lot of people still have a cushion of savings that they built up during the pandemic,” Mr. Barnard said. “People are keen to get back to their prepandemic life.”

Ad executives said many companies have refrained from making deep cuts to advertising since consumer spending has managed to remain relatively healthy.

Cleaning products maker

Clorox Co.

said last month that it remained on track to spend 10% of its revenue on ads, and consumer-goods giant

Kraft Heinz Co.

told analysts in April that it had no intentions of cutting marketing. “We want to continue investing in our brands,” said Heinz CEO

Miguel Patricio.

Ad and media executives have said advertising categories doing well include pharmaceuticals, entertainment and travel, while others such as cars have been shrinking, partly due to supply shortages.

Automotive ad spending in the U.S. declined about 8% in the first quarter from a year earlier, according to estimates from Standard Media Index, whose research captures data from national-brand spending with major ad-buying companies.

Zenith said it expects digital-ad spending globally to grow by 13% to $472 billion, down slightly from the 13.7% growth it expected in December. Zenith said that higher prices for TV ads, caused by lackluster ratings, are causing brands to accelerate their shift to digital ads. The ad firm estimates that 62% of ad budgets will be spent on digital media in 2022, up from 59% in 2021.

Write to Suzanne Vranica at [email protected]

The firm said it reduced its projections because of the sharp cuts to advertising in Russia and neighboring countries. Since the war began in February, hundreds of companies such as

McDonald’s Corp.

,

Anheuser-Busch InBev SA

and

Netflix Inc.

have suspended their businesses in Russia or pulled out entirely from the country.

The conflict has had a chilling effect on advertising spending in the region, something that many tech companies including Facebook parent

Meta Platforms Inc.

noted in their most recent quarterly earnings. Zenith estimates that Russia’s invasion of Ukraine will lead to a 26% decline in ad expenditures in Central and Eastern Europe this year.

Still, Zenith expects overall ad spending to be buoyed by the Beijing Winter Olympics, the midterm elections in the U.S. and the soccer World Cup in Qatar, events that all attract significant amounts of advertising.

“We expect a strong year of growth,” said Jonathan Barnard, Zenith’s director of global intelligence.

Analysts and observers have grown increasingly worried over the past few months that the global advertising market could falter due to macroeconomic headwinds such as high inflation, supply-chain problems and higher commodity prices.

Those fears were ratcheted up after retailers such as

Walmart Inc.

and

Target Corp.

posted weaker-than-expected quarterly earnings and most major digital-ad players reported a notable slowdown in ad-revenue growth during their latest earnings reports. Social-media giant

Snap Inc.,

which generates most of its revenue from advertising, recently warned investors that its second-quarter revenue and earnings would be lower than expected because the macroeconomic environment had deteriorated further and faster than the company had expected.

Despite these headwinds, ad spending has “remained on track,” Zenith said. The firm expects ad spending in North America to grow by 12% to $332 billion this year.

Zenith attributes the ad market’s resiliency partly to consumer spending, which continues to grow, as people are looking to travel and enjoy entertainment such as going to the movies, experiences that they missed during the global pandemic.

“Some consumers are reassessing where their budgets are going given the rapid rise in prices for energy and food, but overall consumer spending has maintained because a lot of people still have a cushion of savings that they built up during the pandemic,” Mr. Barnard said. “People are keen to get back to their prepandemic life.”

Ad executives said many companies have refrained from making deep cuts to advertising since consumer spending has managed to remain relatively healthy.

Cleaning products maker

Clorox Co.

said last month that it remained on track to spend 10% of its revenue on ads, and consumer-goods giant

Kraft Heinz Co.

told analysts in April that it had no intentions of cutting marketing. “We want to continue investing in our brands,” said Heinz CEO

Miguel Patricio.

Ad and media executives have said advertising categories doing well include pharmaceuticals, entertainment and travel, while others such as cars have been shrinking, partly due to supply shortages.

Automotive ad spending in the U.S. declined about 8% in the first quarter from a year earlier, according to estimates from Standard Media Index, whose research captures data from national-brand spending with major ad-buying companies.

Zenith said it expects digital-ad spending globally to grow by 13% to $472 billion, down slightly from the 13.7% growth it expected in December. Zenith said that higher prices for TV ads, caused by lackluster ratings, are causing brands to accelerate their shift to digital ads. The ad firm estimates that 62% of ad budgets will be spent on digital media in 2022, up from 59% in 2021.

Write to Suzanne Vranica at [email protected]