Lengthy Middle East war 'to cost ad industry $93.9bn'

US president Donald Trump might claim the war in the Middle East is already won but a prolonged conflict could threaten $49.9bn of global advertising growth this year, and $93.9bn over the next two years, while even a milder crisis still risks $19.0bn this year, with residual impacts lasting well into 2027.

That is the worrying conclusion of a new study from WARC, based on data aggregated from 100 markets worldwide and using a proprietary neural network which projects advertising investment trends based on over 2 million data points.

WARC’s baseline scenario predicts global ad market growth of 10.4% to a total of $1.32trn this year, an upgrade of 1.3pp from its last forecast in December owing to strong performances from the major online platforms carrying into the start of the new year.

This scenario assumes an oil price holding around $100 per barrel for up to six months, before normalising in the fourth quarter. Second-order inflation is limited in this scenario, and central banks, mindful of economic fragility, do not tighten fiscal policy. The effect on household incomes is relatively modest, with the main impact felt through higher energy bills in importing markets.

In this scenario, the product categories identified as being most susceptible to the shock – automotive (+6.8%), food (+10.3%), leisure & entertainment (+11.4%) and technology & electronics (+13.7%) – are mostly expected to record adspend growth in line with the global rate.

The outlier is travel and transport, where spend is set to fall by 3.5% – equivalent to a net cut of $1.3bn. It is understood that global airlines and tourism firms active in the Middle East are already holding back media budgets, and while these may be reallocated later in the year, high fuel prices and a squeeze on family incomes present serious headwinds for the sector.

WARC’s second scenario assumes that an oil price above $100 per barrel sustains over the two-year forecast period, resulting in monetary tightening by central banks in a bid to combat stagflation.

Real household spend is muted in this scenario, and the pass-through from the supply side shock hits the consumer-packaged goods (CPG) sector – particularly among products with supply chains dependent on grain and fertiliser – much harder than in its baseline scenario.

“Scenario B” presents a greater risk to the advertising and media industry, as consumer purchasing power is limited and businesses act to protect margins in a challenging trading environment. Here, WARC foresees ad growth in the food sector halving compared to the baseline, with consumer technology and leisure and entertainment spend growing behind the total market.

Meanwhile, WARC’s worst-case scenario, “Scenario C”, assumes a persistent supply shock with strong second-round inflation, comparable to the 1973 oil crisis. This results in aggressive monetary tightening across key markets as central banks attempt to prevent mounting recessionary risks.

Consumer confidence collapses in this scenario, and real household spend falls year-on-year. As a result, adspend growth is either flat – food (+0.7%), leisure and entertainment (+0.2%) – or falling; travel and transport could cut budgets by 5.8%.

Taken together, the global ad market would still grow 6.2% this year, but this is 4.2pp behind WARC’s baseline, equivalent to a cut of $49.9bn. The impacts of this severe market shock would carry into 2027, resulting in a further $44.0bn of lost growth compared to the baseline.

WARC director of data, intelligence and forecasting James McDonald, who is author of the research, said: “Even in a contained scenario, an oil shock of this nature acts like a tax on consumers – pushing up prices while eroding real spending power. In a more prolonged or severe disruption, we move into stagflation territory, where sectors like travel, automotive, food and consumer electronics take a direct hit from both rising costs and falling demand.

“The net effect is a meaningful squeeze on discretionary spend that puts up to $50bn of anticipated ad market growth at risk this year, as brands pare back their media investment in a bid to preserve thinning margins.”

Picture credit: Sky News