First Wall Street, Then Main Street, Now Madison Avenue: Ad Forecast Crashes With Economy

In the first major ad spending outlook revision since the global financial crisis began escalating weeks ago, Publicis' ZenithOptimedia unit has dramatically lowered expectations for 2008 and 2009, slashing its U.S. ad growth estimates by more than half. The U.S. advertising marketplace is now expected to expand only 1.6% in 2008, and 0.7% in 2009, down from the agency's last forecasts in June of 3.4% and 2.6%, respectively for 2008 and 2009.

Noting that North American and Western European regions have been most adversely impacted by the reduced liquidity in the financial markets, ZenithOptimedia nonetheless also lowered its global ad growth estimates dramatically to 4.3% in 2008 and 4.0% in 2009 vs. its June predictions of 6.6% and 6.0%, respectively.

"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," the agency writes in the most recent edition of its quarterly ad spending tracking report. "The bank failures will have a fairly small direct effect on ad expenditure - since financial advertising contributes only about 4% of global ad expenditure - but fears for the future will cause consumers to cut their spending, while companies carefully inspect their budgets to find cost savings."



Unlike previous periods leading up to the last two advertising downturns, ZenithOptimedia noted that advertisers already had 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 GDP and peaking at 1.07% in 1989 and 1.05% in 2000," the agency notes. "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%-0.93% of GDP. There is no bubble in ad expenditure to burst, which is why we expect global ad expenditure to slow in 2008 and 2009 rather than to go into reverse."

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