Hopes of recovery in advertising dashed by Zenith

Just as the media industry was nearing a forecast advertising recovery, predicted for the second half of this year, Zenith, one of the leading forecasters, downgraded its outlook for the sector yesterday.

Just as the media industry was nearing a forecast advertising recovery, predicted for the second half of this year, Zenith, one of the leading forecasters, downgraded its outlook for the sector yesterday.

As recently as December Zenith had forecast that a second-half recovery in 2002 would lead to a 0.8 per cent growth for the full year in expenditure by companies, in the seven leading industrial nations. It revised this forecast and predicted that the year as a whole would end down 1.9 per cent.

For the UK, December's forecast of 0.7 per cent growth turned into a 1.9 per cent contraction. Zenith said that the first quarter of 2002 had turned out to be much worse than expected and this meant that any recovery had been pushed out to the fourth quarter, and even that would be patchy.

"Advertisers have had their margins eroded by fierce competition, and in many cases by the need to write down assets that have fallen sharply in value, so they have cut back on advertising as well as other expenses to protect reported earnings," Zenith said.

The media services agency, owned by Publicis, noted that the ad markets are becoming more gloomy just as economists have started to revise up their forecasts for general economic growth. Zenith said that as well as the 2002 decline, there would be at least another two years when advertising will underperform GDP, as the industry's recovery lags behind the broader economic cycle.

In 2001, the top seven countries saw advertising shrink 5.4 per cent, Zenith said. On its predictions, the negative trend will be overcome next year but even in 2004 the absolute volume of advertising expenditure will not equal the boom year of 2000, which saw $236bn (£169bn) spent on ads in these countries.

The Zenith report contrasted with news from the Institute of Practitioners in Advertising, a qualitative study, which picked up the first signs of the green shoots of recovery in the media sector. The latest quarterly bulletin from the IPA said that, after more than 18 months of cost-cutting, Britain's biggest companies are planning to increase their spending as business confidence grows.