ZenithOptimedia reduces forecast for ad spend growth to 4 pc in 2008 and 2009

ZenithOptimedia reduces forecast for ad spend growth to 4 pc in 2008 and 2009

Author | exchange4media News Service | Tuesday, Oct 14,2008 8:02 AM

ZenithOptimedia reduces forecast for ad spend growth to 4 pc in 2008 and 2009

The current global economic churn has begun to have its effect on ad spends. ZenithOptimedia has reduced its forecast for ad spend growth to 4.3 per cent in 2008, down from the 6.6 per cent growth forecast that it had published in June earlier. It has also reduced its growth forecast for 2009 from 6.0 per cent to 4.0 per cent. The reason for the downgrade is primarily the financial shock caused by the bank failures during the latest phase of the crisis in financial markets, which has spread uncertainty and undermined confidence in the wider economy.

Though the bank failures will have a fairly small direct effect on ad expenditure – since financial advertising contributes only about 4 per cent of the ad expenditure – fears for the future will cause consumers to cut their spending, while companies carefully inspect their budgets to find cost savings.

Unlike in the periods leading up to the last two ad downturns, advertisers have not been increasing their budgets ahead of economic growth over the last few years. In the years preceding the downturns of 1990 and 2000, ad expenditure grew well ahead of the general economy, rising as a proportion of the GDP and peaking at 1.07 per cent in 1989 and 1.05 per cent in 2000. This left the ad market vulnerable to sharp corrections when the economy slowed. In recent years, however, ad expenditure has roughly tracked the economy, and has remained at 0.92 per cent of the GDP. There is no bubble in ad expenditure to burst, which is why ZenithOptimedia expects global ad expenditure to slow in 2008 and 2009 rather than to go into reverse.

Earlier this year, ZenithOptimedia, in partnership with Business Week, had conducted a survey of US consumers to determine how their spending patterns would change in the event of a downturn. Asked where they would make cuts if they had to reduce their total spending, 56 per cent said luxury goods, 50 per cent said travel and 39 per cent said entertainment. These are the categories most at risk as worried consumers tighten their belts, and will be under the most pressure to cut their ad budgets. Household goods, clothing and essential basics are at least risk – 23 per cent, 15 per cent and 6 per cent of consumers said they would cut back in these respective categories. Spending patterns will vary between markets, but in general, companies that provide non-essential goods or services are most likely to find their ad budgets under threat.

So far the worst effects of the credit crunch have been felt in the West. ZenithOptimedia has reduced it’s growth forecasts for North America and Western Europe in 2008 and 2009 and now expects ad spend in North America to grow 1.8 per cent this year and 0.9 per cent in 2009, while in Western Europe, ZenithOptimedia forecasts 1.6 per cent growth this year and 2.6 per cent next year.

Forecasts have also been reduced for all other regions, principally because they are vulnerable to international budget cuts by multinational advertisers. However, for the most part, developing markets remain fundamentally healthy. ZenithOptimedia forecast 6.6 per cent growth for Asia Pacific this year and 5.2 per cent in 2009; excluding Japan, these figures jump to 10.1 per cent and 7.1 per cent, respectively.

The very different growth rates of developing and developed markets means that the ranking of the world’s largest ad markets is changing quickly.

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