Sir Martin Sorrell, the chief executive of WPP, the global advertising and marketing giant, yesterday warned that while the world economy had emerged from its latest "bath" shaped cycle of decline it now risked "taking a shower" in 2005 because of loose fiscal policy in the United States.
WPP announced that like-for-like revenues had risen 1 per cent in the fourth quarter of last year to give an annual increase of 0.7 per cent. The measure strips out acquisitions and currency fluctuations to give a clearer picture of the health of the advertising market.
Overall revenues at the company were up 5 per cent to £4.1bn with profits before tax of £473.4m. The company's final dividend was increased 20 per cent to 6.48p.
The group announced that the UK had seen revenue growth of 7.4 per cent in 2003 while North America, which accounts for 48 per cent of operating profits, had seen a 5.8 per cent rise in revenues compared with 2002.
Sir Martin has long predicted that 2004 would see an upturn in the advertising cycle with clients expected to spend substantially more than in 2003. He has characterised the media slump as a bath-shaped decline and recovery.
"Worldwide economic conditions are set to improve in 2004," said Sir Martin. "President Bush wants to be re-elected and will try to continue to stimulate the US economy through increased government spending, which will be reinforced by the Athens Olympics, the European Football Championships in Portugal and heavy political advertising in the US.
"This year's prospects, therefore, look good with worldwide advertising and marketing services spending set to rise by at least 3-4 per cent."
However, Sir Martin cautioned that after the November US Presidential elections, the White House incumbent may take action to tackle the large US deficit, a weak dollar and rising inflation.
"United States government spending is already rising at levels not seen since the Vietnam War in 1967. We would not want to take a shower in 2005," he said.
Sir Martin said that large network broadcasters such as the newly merged ITV faced a "great opportunity" as advertising revenues began to improve. However, he warned they would need to deliver strong programming schedules and respond to advertisers' needs.
"The danger is that they become complacent and arrogant and don't listen, then they will suffer," said Sir Martin.
He said clients were increasingly willing to experiment with other media such as outdoor advertising and commercial radio as alternatives to network television.