INSIGHTanalysis: Media Healthcheck – January 2005
The start of 2005 saw independent media communications specialist, Carat, releasing its global advertising growth forecasts for the coming year. The agency group predicts that global advertising expenditure will grow by 4.9%, as advertisers show few signs of cutting media budgets. However, Carat cautions that while the market is currently healthy, the price of oil, the weakness of the dollar and the US current account deficit could be causes for concern as the year progresses.
Elsewhere, European adspend is forecast to rise by 4.4% this year. Within Europe, the UK is estimated to increase by 4.6%, Germany looks set to end 2005 looking brighter than it did in 2004, up 1.3%. In France, advertising expenditure is forecast to be up 2.2% in 2005.
GDP Growth
Merrill Lynch commented on the outlook for the 2005 global economy in Janaury, posting a conservative forecast for global GDP of 3% real growth for 2005, compared to 4% for 2004. Europe is forecast to see real growth of 1.8% in both 2004 and 2005 (2005 consensus forecast is 1.9%). This is below Merrill’s previous forecast of 2.2%. The UK is predicted to see 2.8% GDP growth in 2005, down from the 3.4% growth rate it enjoyed in 2004.
Merrill’s 2005 GDP forecast of 3.2% (3.0% previously) for the US, indicates US growth slowing in the coming year. However, Merrill has been conservative with its prediction and the consensus estimate for US GDP in 2005 is higher, at 3.7%.
The dollar continues to be weak into 2005, although Merrill’s strategists see the dollar rallying against the pound in 2005, and expect the dollar to end 2005 close to today’s levels against the Euro. This validates earlier predictions from industry experts, who also believe the dollar will end 2005 on a high.
Merrill has forecast a 4-5% adspend growth in developing markets, with Asia Pacific expected to increase by 5.9% in 2005, in contrast to 4.9% in 2004.
UK Picture
Also released in January were the Advertising Association’s predictions for UK advertising expenditure in 2005. Slightly more conservative than that of Carat, the AA expects adspend to rise by 4.2% in 2005, with the internet the fastest growing medium, up 38.1%.
Other media expected to do well by the AA are outdoor advertising, forecast to increase by 6.2% in 2005; cinema adspend, which is forecast to rise by 4.8% and radio advertising expenditure, which could rise by as much as 4.5%.
Steady Economic Outlook For 2005
January also saw economists offering their forecasts for 2005, with the consensus opinion looking forward to another year of steady economic global growth, driven by the market forces of the US and China.
Unemployment is expected to fall gradually in the US and Asia, and Britain is predicted to stay at its current near-record low level.
The Organisation for Economic Co-Operations and Developments (OECD) forecast that US economic growth will be 3.4% for 2005, although some experts think it may be higher. For Britain, the OECD has revised its estimate to 2.5%, down from 3.2%. Growth in Japan and China will also be slow in 2005 with the OECD forecasting 3%-4% and 8%-9% respectively. Economic growth for Europe is predicted at only 2%, although experts say that this could be improved if the Euro falls sharply, or if interest rates are cut by the European Central Bank (ECB).
The UK economy in 2005, is predicted to grow at a slower pace than last year, as house prices decline and consumer spending eases. This could raise prospects of the first cuts in interest rates since July 2003. George Buckley, an economist at Deutsche Bank AG, predicts rates will finish the year a half point below their starting point and said: “The consumer will be affected by a weaker housing market; global growth will be lower.”
Anatole Kaletsky, economist for The Times, believes that if the Euro starts to decline then the ECB will keep interest rates at 2% for most of the year, before increasing to 2.5% in the fourth quarter; resulting in the Euro ending 2005 much lower against the dollar and Asian currencies, and slightly lower against the pound. This would have a knock on affect on the European community as it would have to cope with weaker export growth stemming from the predicted behaviour in the US and China, combined with the hardening of the Euro.
Experts widely believe the US dollar will end 2005 on a high, with a report in The Independent on Sunday predicting it to be 40% up against major currencies.
However, providing the Euro softens, house prices should be sufficient to offset weakness and keep GDP growing by around 2%.
Forecasts for the UK housing market are varied, with industry bodies proclaiming both increases and decreases in house prices. The Centre for Economic and Business Research predicts that house prices will continue their recent 10% decline, to depreciate in value by 7% in 2005. The UK’s biggest mortgage lender, Halifax, also forecasts a drop in the housing market, but by a more conservative 2%.
However, industry body, the Royal Institute of Chartered Surveyors, predicts a 3% rise in house price and their estimation is echoed by Nationwide. Property research company, Hometrack predicts the market to stagnate with national house prices staying much the same.
Overall, the housing market is predicted to remain weak into the first half of 2005, according to the BBC. However, with the wider economic climate remaining fairly strong this year, and the expected upward trend in employment and income to continue at a steady pace, housing demand is likely to rise in the second half of the year and keep prices stable.
The global labour market is also expected to improve in 2005, according to a report in the Financial Times. This opinion is seconded by Mr Kaletsky in his 2005 predictions.