An uneven macro landscape is limiting the scope for significant advertising growth in Asia-Pacific. According to Media Partners Asia (MPA), net advertising spend in the region will increase by 5.4% this year, the same level as 2013, moving to a 5.8% lift in 2015. 

“It’s been a bumpy ride for much of this year, despite national elections in a number of countries and the Fifa World Cup,” says MPA director Vivek Couto. “Budget cuts from multinational brands across key emerging markets have left local advertisers taking up the slack for much of the year. The visibility for 2015 is better, assuming that there is greater macro stability.”

By media, TV and digital continue to contribute the most to advertising growth across Asia. TV is expected to expand by 5.2% next year, while digital will maintain a double-digit momentum with a 16.9% rise.

By the end of 2015, TV will have 39.3% of the total media advertising pie, marginally down from 39.8% five years ago. Digital will have a 26.3% share, a significant step-up from 14.8% in 2010.

In Australia, China, Japan, Korea and Taiwan, the past five years have largely been about an exponential swing in favor of online and mobile.

The next five years could see similar momentum across markets such as India, Indonesia, Thailand and Vietnam. However, TV will remain dominant in these markets and still robust in China, Japan and Korea.

Stalled Momentum

Overall however, the macro environment is falling short of earlier promise.

“While comparatively more robust than the rest of the world, Asia’s growth momentum appears to have stalled in recent months, with trade at a much weaker level than expected, while production has been slowing,” says Taimur Baig, an economist with Deutsche Bank.

At present, much attention is focused on political change in two big emerging markets – India and Indonesia.

“India and Indonesia were the two fragile economies of last year,” Baig says.“The former is now riding high on PM Modi’s election victory, compression of the current account deficit, reserves build-up, and surging capital inflows looking for substantive reforms.

"The latter, unfortunately, has seen a sharp rise in political risk, while the current account has not adjusted measurably since last year.”

MPA is now targeting 12% ad growth in 2014 for Indonesia, down from an earlier 15% forecast, although MPA analysts are guiding for a stronger 2015 with a 13.1% lift.

“While the Fifa World Cup and elections contributed to some significant growth in 1H 2014, there’s been a downturn post elections, which is expected,” says Aravind Venugopal, VP at MPA.

“Multinational advertisers such as Unilever and Procter & Gamble have reduced budgets this year, but local advertisers have maintained spends. Going into the budget season in Q4, there is some confidence that activity will return to normal in 2015, although media buyers remain cautious,” Venugopal notes.

Meanwhile, concerns over political risk in Indonesia have increased, with the opposition consistently challenging and impeding President Jokowi’s ability to govern. If this dynamic intensifies, expect an adverse impact on the local currency and the economy.

Encouragingly, domestic market activity is improving, with a recent spike in automotive and retail sales. Economic growth is likely to stay above 5.5% next year, although a return to 6%-plus rates looks unlikely before 2016.

In China, domestic demand has been weak for much of the year, although exports are picking up. Most economists contend that China’s main macro reality is a new norm of slower growth but quicker reform. “We believe that consensus has been reached among top leaders to allow slower-yet-healthier growth, and only very targeted stimulus measures,” says Deutsche Bank economist Michael Spencer.

China’s ad market is expected to expand by 10.3% in 2014 and by 9.1% in 2015. TV and digital combined will have almost 75% of the market next year, with digital securing almost a third of ad spend. At its current growth trajectory, the Chinese ad market will overtake Japan’s by the end of 2015, says MPA.

Meanwhile Japan’s ad market is expected to grow by 2.7% this year, and by 2.4% in 2015. Macro headwinds are likely to catch up with free TV and digital, the biggest drivers of ad momentum. Private sector credit has hit a wall in Japan, and Q2 GDP disappointed with weaker domestic consumption. Economic growth is likely to only crawl above 1% a year in 2014-15.

India, meanwhile, is experiencing a recovery of sorts. Business and consumer confidence is rising, while production and auto sales are picking up. Encouragingly, there has been a modest recovery in advertising expenditure across the FMCG sector and a big spike in spend from new categories such as ecommerce.

The economy is expected to grow by 6.8% in real terms next year, while the advertising market is projected to expand by 10.2% in net terms.

Korea remains in a tough place, with its economy hostage to uncertain external demand as well as weakness at home. Advertising is expected to grow by 0.8% this year, and by 2.4% in 2015. Since Q2, proactive government policies have started to boost consumer spend and the housing market. Rising household incomes should also give a boost to consumer spend.

Thailand has struggled on the macro front for much of the year amidst political volatility. As a result, the ad market will contract by 6% this year but rebound by 8.8% in 2015. Media buyers have indicated that there will be significant uptick in demand in 2H 2015.

“Growth continues to weaken in Thailand as attempts by the military regime to revive consumption and investment have yet to provide a discernible boost to the economy,” says Deutsche Bank’s Baig.

“Markets remain resilient in expectation of greater policy efficacy and political stability. These assumptions could be tested if growth remains lackluster for a few more quarters and global market volatility hits Thailand.”

Baig says that Malaysia and the Philippines are the key markets performing on the macro front. “Malaysia’s economic fundamentals are improving with rising growth and a steady current account surplus, while in the Philippines, strong consumption and investment continue to shore up growth.”

Malaysia’s ad market has been soft for much of this year however, with free TV and print feeling the brunt. Advertising is expected to inch up only 1.2% this year, ahead of a 5.8% boost in 2015.

The Philippines ad market is expected to grow by 7% next year from 1.6% this year, driven by 7.5% growth across the country’s dominant medium, TV.

This article also appears in the Q3 2014 edition of Media Business Asia magazine.