• by Joe Mandese  @mp_joemandese, February 12, 2009

In its third downgrade for the U.S. and worldwide advertising marketplace, Wall Street equities firm UBS Wednesday said a combination of "structural and cyclical challenges," will keep advertising declining relatively to GDP in 2009 and 2010."

UBS' analysts, however, said the advertising marketplace should begin improving during the second half of this year, assuming a corresponding improvement in overall economic growth.

But they also reminded investors that Madison Avenue is going through longer term, secular shifts that are transforming the advertising economy, and which have an ongoing effect beyond the current economic cycle.

"In 2006, we indicated that advertising was in a structural decline as a function of overall marketing spending and were expecting ad spend to underperform GDP growth over the mid-term," the equities report reminded. "Our concern for 2009 was a purely structural one, where the absence of major sports and political events would topple the frail foundations of traditional advertising and CPM economics. However, we did not anticipate the strength of current economic headwinds, with most economies in recession now or very soon."

UBS had originally anticipated that 2009 would be a year in which established media companies would shift from investing in new digital platforms to "protecting and reshaping those traditional advertising businesses, especially on the cost side. This would have implications that are behind the scope of our report today, but should affect the once buoyant mergers and acquisitions tech market."

But the reality is that advertising vs. GDP growth in the dominant U.S. advertising marketplace has "rolled back to 1946 levels" after a rapid nine-year decline, and the analysts question whether the industry has "reached bottom yet."