The health of the advertising economy is closely related to corporate profitability and consumer spending. A number of industry observers have noted that during the recent advertising downturn, corporate profitability has been the weak factor in the economy, whilst consumer spending has been resilient.
However, in a pan-European outlook for 2003,
Merrill Lynch analysts say that it is corporate profitability which is now strengthening, whilst consumer confidence looks increasingly under threat. The combination of these factors is likely to lead to a muted ad growth for the year, of 0% to 3%. Moving into 2004, a more significant improvement of 4% to 5% is anticipated by the broker.
Improvements in advertising spend had already begun to filter through in the latter half of 2002. US television and radio and UK TV have seen much better figures in H2 2002 and Q4 has brought some stabilisation or mild recovery to some European markets.
Press advertising has been more muted and B2B and financial revenues have remained in decline in H2 2002, says Merrill.
As has been noted by other commentators, the degree to which advertising growth will be hampered very much depends on the strength of consumer spending (see Insight Analysis: Will A Consumer Spending Dip Bring Down Ad Revenues?). House prices are looking set to fall, debt to disposable income ratios are now at record levels in some countries and there is a rise in unemployment. These factors are likely to push down consumer confidence and spending.
This development will in turn mute the growth of advertising spend, but Merrill Lynch is confident that it will not prevent growth altogether.
“We believe advertising will not decline, as corporate profitability should be recovering and certain sectors, notably telecoms, media, healthcare and financial services should see uplifts for structural reasons. Nevertheless, if interest rates were to start to rise again, this might weaken the marketplace in H2 2003,” it says.
Spend in 2004 is expected to be boosted by the US presidential elections and the Olympics. Merrill has compiled a comparison of all the most recent advertising forecasts, shown here.
| Advertising Growth Forecasts Comparisons |
| |
|
|
|
|
|
| |
Area |
2001 |
2002F |
2003F |
2004F |
| Merrill Lynch |
US |
-6.3 |
0.7 |
4.0 |
– |
| |
Rest of world |
-3.3 |
-2.5 |
2.1 |
– |
| |
Global |
-5.3 |
-1.2 |
3.0 |
– |
| AA/WARC |
UK |
-5.2 |
-1.0 |
5.4 |
n/a |
| Zenith Media |
US |
-6.1 |
1.3 |
1.9 |
3.7 |
| |
5-country Europe |
-4.8 |
-2.8 |
1.8 |
4.2 |
| |
Global |
-3.5 |
0.2 |
2.9 |
4.4 |
| McCann Erickson |
US |
-6.5 |
2.6 |
5.0 |
n/a |
| |
Rest of world |
-7.0 |
0.5 |
4.7 |
n/a |
| |
Global |
-7.0 |
1.6 |
4.9 |
n/a |
| Source: As above, Merrill Lynch, January 2003 |
