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January 25 2023

World Economic Forum Outlook 2023

Perspectives

Signals from WEF in Davos

A tough year needs resilience

The World Economic Forum reconvened in its traditional week in Davos for the first time since the pandemic.

Seen by some as a controversial meeting of a global elite, many political leaders and some brands have chosen to stay away this year.

It is not just a forum for debate. Many outlooks, trends, and solutions are published from various sources providing perspectives across private and public sectors.

The Chief Economist’s Outlook provides a consensus opinion from many of the world’s most eminent economists on what they expect to see this year.

Two-thirds expect to see a period of recession in 2023, while the World Bank predicts only overall 1.7% growth.

Prospects differ around the world, with South Asia seeing the best options. This year, India will overtake China in terms of population, which announced its first official decline this week. China’s population is set to more than halve by the end of the century, driving pressure on the existing economic model.

100% expect to see weak or very weak growth in Europe. About half of EU steel plants were at a stand still as of November 2022, and fertilizer production capacity was reduced by 70%.

Despite this gloom, many forecast that we will see some recovery this year. The US economy is showing resilience; The IMF forecasted global inflation to dip to 6.5%in 2023 from 8.8% in 2022. While 64% of WEF economists believe the energy emergency will be less severe by the end of the year.

A de-globalized world?

Broadcasters have been concerned that negative sentiment and the timing of the event this year will impact ratings.

There has been much debate about the slowing and potential reversal of globalization in recent decades. The WEF in Davos is perceived by many as globalization’s most visible illustration.

The pandemic, war in Ukraine, and developing tensions between the US and China contribute to this narrative. The proportion of global GDP accounted for by international trade has been falling since 2008.

Many economists are less worried about supply chain disruptions. Instead, weaker consumer demand is seen by 91% as a significant dragon business activity.

The most significant challenges we face are global in nature. The WEF risk report details the primary sources of risk over the next decade.

The following two years will be dominated by risks coming from the cost of living crisis, while the implications of climate change dominate the 10-year outlook. In Germany, the two-time frames are at odds as coal mines are being reopened to mitigate the costs of the current energy crisis.

These risks are also deeply connected to other exposures, such as misinformation, digital inequality, privacy, extremism, terrorism, and even societal collapse.

Brands have a role to play. Avoiding being a source of funding for these risks from advertising in misinformation environments to protecting consumer privacy. As well as a positive driver of change, messaging both challenges and solutions.

Impact on the Ad market

The Media and Entertainment sector takes around 2.4% of the global GDP.

The WEF stream on the Future of Media, Entertainment, and Sport identifies building the metaverse, Digital Safety, and the power of media as critical drivers of future growth.

Despite the headwinds of covid, the supply chain crisis of 2021/2022, and more recent cost of living pressures, digital advertising, which now makes up 55.8 % of global advertising spend, grew 8.7% to USD 567bn in 2022.

Valuations in adtech and martech are returning to historical norms with significant declines in 2022. Multiples are now around 5x net revenues. nearly 30x in late 2020. This should prove the basis for the next round of innovation and then consolidation.

However, we are seeing a recession in mobile ads. Especially for direct-to-consumer eCommerce brands as the ongoing effects of a more significant tightening of regulation and policy in targeted advertising become apparent.

This will be heightened by the recent ruling and €390m fine against Meta in the EU, stating their current legal basis for ad targeting is invalid.

The issue is explored in OMG analysis. The results of the pending appeal by Meta will define the following steps, but inevitably new approaches will be needed to drive effectiveness.

Deep tech

Technological innovation has always been a driver of economic growth. Trends move quickly; last year’s darling technology, crypto, is down but not out.

The diffusion of technology is getting ever more rapid. Chat GPT is a significant talking point in Davos.  Already generative AI is positively impacting the productivity of everyone from the most advanced software developers to farmers in the developing world, all within months of release.

This week Microsoft announced Open AI’s technologies would soon be embedded across the whole range of Microsoft products.

This will enable everything from a more capable Bing challenging Google’s hegemony in search to the Office suite, such as automatically creating bespoke images in PowerPoint or rewriting word documents.

We can all expect to see new tools available to us within a matter of months that will increase productivity for all that can incorporate them.

At the organizational level, capabilities that have, to date,  been limited to only the most advanced research labs will be available to all. This means that fine-tuned models can be built around an enterprise’s data set, releasing new forms of value.

The world faces significant economic headwinds, but technology provides a route to the productivity gains necessary to deliver the agility needed to navigate the cost of living crisis and the resources required to transition to a post-carbon economy.

 

Originally produced by OMD for Rapid Response © OMD 2023

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