Will showers rain on the advertising parade?

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The Independent Online

Sir Martin Sorrell, the sage of adland, must be obsessed with personal hygiene. Analysts were scratching their heads after the latest utterances from the chief executive of advertising group WPP. "We're definitely out of the bath - but watch out for the shower," he said last week about the outlook for the advertising market for 2005.

Sir Martin Sorrell, the sage of adland, must be obsessed with personal hygiene. Analysts were scratching their heads after the latest utterances from the chief executive of advertising group WPP. "We're definitely out of the bath - but watch out for the shower," he said last week about the outlook for the advertising market for 2005.

He was referring to his oft-repeated declaration back in 2002 that the advertising market was facing a "bath-shaped" recession, but this was his first mention of showers. Sir Martin told The Independent on Sunday that the comments were "tongue in cheek". But what did he mean? And is the advertising world going to get drenched?

Companies (and governments and NGOs) around the world spent $345bn (£188bn) on advertising last year, according to media buying and research group ZenithOptimedia. This is set to rise to $366bn this year, 3.7 per cent more than last year on an inflation-adjusted basis, thanks to the global economic recovery, the best performance since the late 1990s. The period in between is the "bath".

Advertising fell off a cliff (or into the bath) in 2001, slumping by 6.8 per cent on the previous year, followed by two more years of stagnation. Andrew Gowers, editor of the Financial Times, never tires of calling the advertising recession "the worst in living memory".

The advertising recovery is now in swing, but the question is how strong it will be. Advertising is very sensitive to economic trends, which determine how much consumer demand there is for companies' products, and how much money companies have to promote them.

Spending has been boosted this year by one-off "big ticket" items such as the Olympics, football's European Championships and the presidential elections in the US, where analysts estimate that the political parties alone have spent over $1.6bn in promoting their candidates. Without these events - and with a stronger previous year to beat than 2003 - growth next year will slow. ZenithOptimedia forecasts year-on-year growth of 2.5 per cent.

Back to the showers warning. Sir Martin explains that the triple effect in the US of a widening deficit, weak dollar and potential inflation from surging oil prices could see the US economy pull back slightly next year, hitting advertising. But he added that growth in Western Europe and Asia should remain largely resilient, even if the US weakens.

Jonathan Barnard from ZenithOptimedia warns that a slump in consumer confidence - which withstood the last recession - is another potential shower. But there is little sign of this happening yet. Unilever, the Hellmans-to-Birdseye consumer goods giant, and one of the world's biggest spenders on advertising, last week signalled a slowdown. But this could be more down to problems with its product lines rather than weakening consumer demand.

And there's a silver lining. Unilever said it would spend an extra £100m on advertising in the run-up to Christmas to try to halt the sales slide. As Kingsley Wilson, a media analyst at Investec Securities, points out: "Any weakness in consumer spending could be a positive, as advertisers will have to promote their products more heavily to hold on to market share."

So how will Sir Martin occupy himself next year if he escapes the shower? Following WPP's $1.5bn acquisition of US rival Grey Global earlier this year, there is speculation that he could make a move for the French advertising group Havas. The deal-hungry Sir Martin has admitted to making a verbal offer for Havas, which missed out on the Grey Global deal. Some analysts question how good a fit Havas - focused on North America and Europe - would be.

Mr Wilson adds: "I'm not sure of the strategic fit with WPP, which wants to focus on fast- growing areas like Asia and Latin America. But if Sir Martin Sorrell thinks the price is right, WPP will go for it."

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