• by June 29, 2001

Falling multinational profits have knocked the wind out of worldwide advertising spending, which had advanced 10.8% in 2000 and is now expected to grow by only 1.4% this year, according to the latest forecast from Zenith Media Ltd.

"We are hearing the same story from all over: economic growth cooled markedly in the last quarter of 2000 and advertising budgets fell heavily in the first quarter of 2001," said John Perriss, worldwide Chairman and CEO of Zenith Media. "They certainly had to slow down: global advertising expenditure grew by an astonishing and quite unsustainable 10.8% in 2000, assisted by the short-lived dot-com jet stream, causing media price inflation to break out anew."

Dot-com failure, falling stock indices, and sudden profit pressure have shaken business confidence more than had been expected. Despite the lesson for advertisers from the 1990-1991 recession - 'keep spending' - profit pressure has again encouraged big advertisers to rein in worldwide spend.

Where have the profits gone? Zenith says it's probably a combination that includes price competition, rising labor costs, volatile energy prices, and the end of a uniquely productive IT investment cycle. Corporate profitability growth among large American companies averaged about 19% in 2000, and occupied the highest proportion of American GDP for 30 years. In the final quarter, this annualized growth had slipped to about 7%, going 6% negative in the first quarter of 2001.

Zenith said, "if we relax our year-on-year fixation and compare 2001 to 1999, things do not look so bad. We expect global advertising spend this year will be 12% higher than 1999. We expect USA advertising to represent 1.4% of USA GDP in 2001, the same as in 1999, and in keeping with an incremental but generally positive trend since the last recession. The spectacular 1.5% achieved in 2000 looks like the exception it is to this trendline."

The 10.8% growth in advertising in 2000 was the most rapid acceleration since 1988. Zenith's new forecast for 2001 is for almost negligible growth of 1.4%. After allowing for inflation, this is actually 1.4% below the 2000 spend in real terms - the first such reversal since 1993, at the end of the last global recession.

Additionally, Zenith said, the US influence on advertising cannot be overstated: it is home to 43% of the world's advertising spend and to most of the world's international advertisers. Every other advertising market feels its influence. "The second-half bounceback we hoped for in 2001 is not happening," they said, "but we remain optimistic of a return to something like trend in 2002, at least in North America and Europe. Companies will prefer to get bad news on profits out quickly. Public finances in the west are in generally good shape (Japan excepted), with widespread tax and interest rate reduction. Media space will seem relatively cheap, and the urge to advertise is notoriously infectious."