2013 Opinion Issue

Financial Forecast for 2014: Tough, But Manageable

WPP Chief Optimistic on Several Fronts; Hopeful But Cautious on Brazil

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How do I see 2014? Tough but manageable, with a bit of incremental growth.

If we look at the growth forecast for nominal GDP at 5.5% to 6.5% or real GDP at 3.5% to 4% globally, both up from 2013 by 0.5% to 1%, the underlying environment is a bit little better. So we're in this slow crawl out of the "Lehman" recession of 2009, which was pretty devastating for a lot of companies and people.

Of the four "gray swans" (or known unknowns) that we identified -- the eurozone, Middle East, the hard/soft landing of BRIC and the U.S. deficit -- three have probably got whiter and turned less grim, although there are arguments both ways. People generally feel that the eurozone, if not under total control, is under [European Central Bank President Mario] Draghi's strong hand at the tiller. In the Middle East we've seen a little bit of progress with Iran and to some extent with Syria, although it's still a big mess. Generally I think people feel a little bit more bullish, for example, about Egypt and the potential new regime there.

Regarding the hard/soft landing of BRIC, I'm very impressed by the prospects for China. The new leadership made a very strong start, from what we can see. The economic policy laid out in the 12th "five-year plan" and now in the Plenum document, I think augurs strong growth. Not as strong as before, but at about 7.5% per annum, which we would kill for in the West. I am bullish on Russia as long as the energy price stays up roughly where it is now. There are some question marks on that, given the Iranian rapprochement. India is still a bit of a puzzle. We have to wait and see what happens in the election. It's likely to be a coalition, and therefore, deadlock and compromise rather than decisive leadership. Brazil obviously is problematic too, given the concerns about inequality and the investment in not just with the World Cup, but the Olympics. But I have great faith in Brazil. So three of the gray swans may be better.

The fourth gray swan that still looms over business is what happens in Washington in January and February and whether the can gets kicked down the road, and if so, for how long? The longer it gets kicked down the road the better, but I don't see any final resolution of the budget or deficit issues (although there has been minor progress already). What I see is more procrastination, and we have the U.S. midterms next year, which will add, I suppose, to the uncertainty. I think America will be stronger and its long-term future is very bright on the back of energy self-sufficiency and revolutions in manufacturing, which gives high-cost/high-tech manufacturing countries like America an advantage. Three-D printing, for example, in terms of manufacturing technology, is going to give America a big advantage.

In terms of other geographies, the bookends of Western Europe, the U.K. and Germany, I think will be good. German growth is more muted, but with Germany and Poland coming up strong in the third quarter of 2013 and Russia also strong, those three countries together indicate Europe is also moving eastward and will be stronger. Italy is bumping along at the bottom. Spain may be bottoming out, but unemployment remains unacceptably high. Central Europe will continue to be strong. Therefore, Western Europe is patchy.

Latin America will be stronger, too. The recent passage of energy reforms in Mexico by President [Enrique] Peña [Nieto] will be a tremendous base for future Mexican growth. Colombia and Peru are other markets that are interesting, and I think will grow. Of course, mainly for political reasons, the challenging markets are Argentina and Venezuela, although I remain optimistic about both.

Africa and the Middle East will continue to grow. The Middle East will host a World Expo 2020 and the World Cup in Qatar in 2022, so there are opportunities in the Middle East. Africa will continue its growth, not just in South Africa, but in sub-Saharan and Francophone Africa and elsewhere. Nigeria certainly is the enticing prospect of the "China of Africa."

Besides China and India, Asia in the whole, maybe with the exception of Japan and Australia and New Zealand, remains strong. Despite some political issues in Thailand, the prospects for the region are good.

At WPP, the focus is on our four strategic priorities: new markets, new media, data-investment management and horizontality. With new markets and new media, our objective now is to move them up to 40% to 45%, of group revenue. With the likely implementation of the [merger between Publicis Groupe and Omnicom Group] in 2014 we will probably add a fifth priority: the opportunities from a client and people point of view that [the merger] offers. A key element in the merger will play out in 2014 when we see if the American side of the business or the French side of the business emerges at the commanding heights of the company.

Martin Sorrell is chief executive of WPP.

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