Steep fall in Sept quarter’s GDP growth dampens ad sector outlook?

India’s economy grew at its slowest pace in almost two years, as per government data released on Friday, dampening the ad sector’s outlook for the full year.

Marking a seven-quarter low, the Gross Domestic Product (GDP) growth of the country dipped to 5.4% in the second quarter of FY25, a steep decline from 7.6% during the same period last year and 6.7% in the April-June quarter. That’s the worst number since the fourth quarter of 2022 and much lower than the central bank’s projection of 7% for the September quarter.

The slowdown was primarily driven by sluggish growth in manufacturing, alongside continued weak government spending and subdued private consumption, according to data released by the National Statistical Office (NSO) on Friday. Manufacturing, which accounts for over 17 per cent of the total Gross Value Added output, grew by just 2.2 per cent in July-September as against 7 per cent growth in April-June and 14.3 per cent growth in the corresponding period last year.

The greater-than-expected slowdown of the GDP is likely to prompt businesses to curtail their discretionary spending to keep their books better. The marketing and promotional spends would be the first casualty, in such a scenario, marketers say.

The development has come at a time when the AdEx this year has already remained flat, first due to the Lok Sabha elections early this year and then due to the softening of demands and dwindling profits. Besides, global economic headwinds continue to impact the Indian startup ecosystem as its funding hasn't improved much, as expected.

This has triggered the speculations within the industry that AdEx may not reach its projected figure by the end of this year. The Pitch Madison Advertising Report (PMAR) 2024 projected that India's advertising expenditure (AdEx) will grow by 12% in 2024, reaching Rs 1.11 lakh crore. “Demand didn’t pick up this year despite a good monsoon and adequate supply. This ensured a moderate AdEx growth in 2024. The Q2 GDP data would further impact the AdEx growth,” marketers told e4m.

In India, GDP growth is often considered a good predictor of advertising expenditure (AdEx) of businesses. GDP and AdEx have indeed demonstrated a dynamic interplay, particularly evident over the past decade. The average growth of AdEx is usually expected to be around 1.5 times of GDP growth. No surprise then that many top advertisers, including FMCG leaders, have cut their ad spends this year, as per their financial reports.

Hindustan Unilever Limited (HUL), for instance, has slashed ad spending by 14.8 per cent in Q2, year-on-year. The standalone ad and promotional expenses of the company stood at Rs 1,464 crore in Q2 of FY 25, compared to Rs 1,720 crore in the corresponding quarter last fiscal. Godrej Consumer Products also dropped its standalone ad spending to Rs 263 crore in Q2 FY25 compared to Rs 279 crore in FY24. Marico too trimmed down ad and promotional expenses by 15.8 per cent.

Explaining factors behind the low demand, Shradha Agarwal, Co-founder and CEO of Grapes, says, “As against the post-Covid phase, which was marked by revenge spending, consumers have settled in the normalised expenditure phase. While people are aspirational and buying luxury products, they are also procuring cheaper products and duplicates as the market is flooded, making the ticket size lower.”

‘Job cuts at senior level’

When marketers tighten their purse strings, the entire advertising system gets impacted, resulting in the harshest - job cuts, industry leaders shared. “Brands are continuously looking for cheaper alternates for marketing in terms of agencies, production or anyother service, as a result of which senior people are struggling and losing their jobs, the output the brand was getting last year they are getting the same output in lesser spends whether in terms of media (movement from offline to online) or production or Employee salaries,” Agarwal says.

e4m previously reported that major agencies have begun quietly reducing their workforce, with an average of 10% job cuts annually. This trend has been attributed to the growing adoption of generative AI and a focus on improving operational efficiencies. These reductions are being implemented gradually to avoid controversy and media scrutiny.

Digital continues to grow
Even as the total ad spending appears to be down, most of the big advertisers have not cut down on their digital ad spends. In fact, HUL has increased its digital ad spends this year. The ad revenue of tech platforms like Google, Meta, e-commerce companies and even quick commerce platforms have jumped this year.

Google India reported an 11 per cent growth in its gross advertising revenue for the financial year ending March 2024, reaching Rs 31,221 crore, up from Rs 28,040 crore in FY23. Meanwhile, Meta India's gross advertising revenue rose to Rs 22,730 crore in FY24, compared to Rs 18,308 crore the year before.

Zepto's co-founder Aadit Palicha shared on Friday that the quick commerce company has crossed Rs 1,000 crore in annualized advertising revenue (Rs 83+ crore per month). "It's been less than 3 years since we launched our Ads Business, and the team we put together has been executing like a machine,” he said in a LinkedIn post.

This growth is expected to be driven by digital advertising, video, social, display, e-commerce, and search. The report also predicts that digital's share of total ad spending will increase from 40 per cent to 42 per cent.

‘Tough time drives creativity’

Many media planners have their fingers crossed for the upcoming year. They hope that the worst is over and things will only go up from here. Anil Solanki, Senior Director, Media Lead, dentsu X, says, "While the GDP dip in Q2 FY25 presents challenges, it also opens up opportunities for advertisers to innovate and focus on value-driven strategies. Tough times often drive creativity, and this could be a turning point for brands to connect with consumers in meaningful ways.