GDP vs AdEx: Why the contrasting growth trends?

In India, GDP growth is often considered as a good predictor of advertising expenditure (AdEx) of businesses. GDP and AdEx have indeed demonstrated a dynamic interplay, particularly evident over the past decade.

Although India's advertising-to-GDP ratio is low, at around 0.4%, which is lower than many of India's Asian neighbours, the average growth of the AdEx is usually expected to be around 1.5 times of the GDP growth. This means if the GDP grows by 6 percent, the AdEx should grow roughly by 9 percent.

However, a closer look at the 10-year comparative data of GDP and AdEx growth obtained from the Ministry of Statistics and Programme Implementation and the Pitch Madison Annual Report 2024 respectively suggests that AdEx often amplifies economic trends, growing disproportionately during economic upturns and contracting sharply during downturns.

This pattern highlights AdEx’s heightened sensitivity to consumer sentiment and global economic conditions, often surpassing its direct correlation with GDP. This could explain why AdEx trends exhibit sharp fluctuations, even during periods of relatively steady GDP growth—except in years impacted by significant disruptions like COVID-19, GST implementation, and demonetization.

For instance, in 2023 which was marked by global economic headwinds funding winters, the country’s AdEx grew by 10 percent only, as against the 8.2 percent GDP growth in Financial Year 2024. Even 2024 appears to be lukewarm as far as advertising is concerned, with many sectors slashing their marketing activities to sustain inflationary pressures, industry experts noted.

Similarly, the pandemic-induced contraction of -5.8% in GDP during 2020-21 led to a sharp 20% decline in AdEx growth, reflecting the drastic impact of economic restrictions on marketing activities. However, the rebound in 2021-22 was remarkable, with GDP surging by 9.7% and AdEx recovering even faster at 37%. This highlights the advertising sector's agility in capitalizing on the digital boom and shifting consumer trends.

The implementation of demonetisation in November 2016 and GST in July 2017 resulted in a slowdown in GDP growth in 2017-18, when it slipped from 8.3 percent to 6.8 percent. In contrast, the Adex growth declined five percentage points-from 12 percent to seven percent.

Notably, during steady growth periods, AdEx consistently outpaced GDP growth. In 2022-23, GDP growth was at 7%, while AdEx climbed by 21%, fueled by strong contributions from sectors like e-commerce and FMCG. Despite moderate GDP increases of 6.5% and 8.0% in 2018-19 and 2015-16, advertising spends rose by 15% and 18%, driven by consumer demand and innovative campaigns.

It is to be noted that two data sets were obtained from two different sources, GDP data was obtained from the government of India, the AdEx growth data (PMAR), their reporting year also varies-the GoI data is based on the financial year and PMAR considers the calendar year. Hence, their comparison may not be fully accurate but it does reflect the trend.

Vishal Chinchankar, CEO Madison Digital & Madison Alpha, says, “The common factor between GDP and AdEx growth is consumption.  And consumption softens due to inflation and other macroeconomic factors. In such times companies curtail their discretionary spends and AdEx is usually the first casualty. That's why AdEx growth may not be exactly proportionate to GDP growth. However, there is a correlation of AdEx with GDP and could differ year on year.”

“In the current year as well, demand hasn’t picked up despite a good monsoon and adequate supply. This has triggered speculations about a moderate AdEx growth in 2024,” Chinchankar noted.

Some experts claimed that the official GDP figures may not be accurate. “Actual GDP figures are often suppressed. Besides, the AdEx figures quoted in industry reports are estimates, not the real statistics. Moreover, industry reports usually take only big brands and agencies into account leaving behind a large chunk of small and medium advertisers. Hence, both the data are not really comparable,” a top industry leader said, requesting anonymity.

Lloyd Mathias, Business Strategist and Independent Director on Corporate Boards, insists that there is a clear symbiotic relationship between GDP and AdEx. “When the overall economy performs well, AdEx naturally increases as business sentiment improves, creating a positive feedback loop—better sentiment leads to higher AdEx, which in turn fuels more optimism. The COVID years were an exception due to the unique challenges faced globally.”

“The deviation occurs when the economy is booming, but company profits are not. In such cases, businesses tend to pull back on AdEx. This often happens during national election years when the Model Code of Conduct restricts activities, leading to deferred launches. Conversely, major global events like the Cricket World Cup or Olympics typically result in a positive spike in AdEx,” he shared.

In 2024, AdEx remained flat due to the Lok Sabha elections. Startups have scaled back, and high spenders, particularly from the IPL, have been missing, Mathias noted. “I believe corporate profitability will improve in 2025, giving a significant uptick in advertising,” he hopes.

India’s economy currently is in a “sweet spot” from a macroeconomic standpoint, blending strong growth with easing inflation, according to a recent report by Moody’s. The ratings agency projected India’s Gross Domestic Product (GDP) to grow by 7.2% in 2024, followed by 6.6% in 2025 and 6.5% in 2026.

How will this reflect on AdEx, only time will tell.