Zenith Media late last week slashed its forecast for ad-spending growth in Europe this year to 3.6%, down from 6.7% at the beginning of the year. Zenith downgraded Asia from 6% growth forecast at the beginning of this year to 3.4% for 2001. Latin America is still the fastest-growing region, with close to 5.4% growth forecast for 2001.
"It's quite a swift slowdown," said Jonathan Barnard, manager of Zenith's London-based knowledge department. "It's rather taken everyone by surprise. It doesn't seem to have anything to do with the fundamentals of European economies-they're still growing. It seems to be mainly a problem of business confidence-the crash of dot-com stocks, and the expectation of lower corporate profitability, which leaves less room for advertising."
"Just because clients have money in their ad budget doesn't mean they're going to spend it," said Roland Crouch, regional director in Hong Kong for Zenith Media, jointly owned by Cordiant Communications Group and Publicis Groupe.
"The only market [in Asia] where there is technically a recession is Japan," said Richard Pinder, Bcom3 Group-owned Leo Burnett Co.'s regional director for Southeast Asia and Greater China. "What we're seeing is a crisis in some clients, particularly local clients. Spending of multinationals continues to grow along [gross domestic product] growth. But some local clients with less resource base and perhaps less experience are taking a more conservative view."
Asian marketers have learned from the devastating recession that hit the region four years ago.
"The difference is, because of the problems of 1997-98, people have reacted much faster to adjust, so there has been some visible pain, but an adjustment should settle out faster," said John Goodman, president, Asia-Pacific, at WPP Group's OgilvyOne, Hong Kong. "In 1997, there was a lot of `This could never happen in Asia' talk, which made people defer adjustment for too long. I definitely expect next year to be better."
China's ad industry is squeezed from two sides.
"With demand for premium-priced multinational goods under strain, clients are lowering prices and cutting back on advertising," said Tom Doctoroff, CEO-China at WPP's J. Walter Thompson, Shanghai. "The U.S. recession is definitely hitting us. Decisions to spend in China are not made on an isolated level. When U.S. spending slows, so do budgets here, and there is increased pressure on compensation agreements."
Zenith forecasts a 1% fall in U.K. ad spending this year, and small increases in other major European markets.
"The market is softer than I thought it was going to be," said Simon Lloyd, chairman of Publicis' Optimedia, London. "In January, I thought it would pull back in the second quarter."
Most countries in Europe plan big ad campaigns to educate consumers about the euro, which will become the official currency in European Union countries except the U.K. on Jan. 1. And there is widespread speculation about a second-half spending boom fueled by the need to exchange local currency for euros early next year. Europe has a large cash-based underground economy, and many people may prefer to spend their hoarded cash rather than taking to a bank large amounts of money they've never declared or paid income tax on.
Though Zenith still forecasts growth in Latin America, there are signs of slowdown. Brazil, the dominant market in South America, has slammed on the brakes, with first-quarter ad spending down 2.9%. Ad spending in Brazil soared by 23% last year but this year will grow "not over 4%," predicted Sergio Amado, president of WPP's Ogilvy & Mather in Brazil and president of the Association of Brazilian Advertising Agencies.
In Brazil, where the unexpected usually happens, consumers and industry are being forced to cut energy use by 20% as a drought hits hydro-electric plants. When mandated energy cutbacks began the first week of June, TV audiences fell by more than 12% in Sao Paulo as people turned off their TV sets to save energy. The energy crisis is adding to the economic crunch: TV networks in Brazil are renegotiating ad packages already sold to advertisers to reflect the drop in viewership.
Contributing: Juliana Koranteng in London and Claudia Penteado in Rio de Janeiro