China has been a bright spot for multinational marketers and ad agencies until now. With most western countries mired in recession, China's economy is still growing, giving hope to marketers, especially automakers like Ford Motor Co. and General Motors, whose U.S. car sales have plummeted.
But Group M put a cloud over such optimism on March 31, when it revised its global 2009 forecast for measured media spending. The WPP media division now predicts China's ad spending growth will decline to just 3.2% growth this year, representing a real fall of 1.1% after inflation. That's a major drop from the 13% growth forecast issued by Group M in December 2008.
Aegis-owned Carat also issued new global growth forecasts for media spending on March 25, 2009, predicting media spending in China will grow 4.6% this year, compared to the 10.9% growth for 2009 that Carat predicted in August 2008. Last year, according to Carat, spending in China increased 18.9%.
ZenithOptimedia will release its revised forecast figures next week and estimates spending in China "will probably be down a bit," said Jonathan Barnard, the Publicis Groupe media agency's head of publications in London.
Auto, property and luxury down significantly
The decline is attributed to consumer retrenchment and a credit crunch in retail distribution, which government stimulus might alleviate.
Also, the forecast issued in December 2008 was based on research conducted in October, said Bessie Lee, Group M's CEO, China in Shanghai. "In the past six months, a lot has changed so the previous forecast was too optimistic."
The industries most affected by ad spending cuts in China are "the usual suspects in a recession," Ms. Lee said. They include auto, real estate, luxury goods and overseas travel.
Spending by telecommunications companies and mobile phone handset makers such as Motorola Corp. and Nokia have also dropped significantly.
Many advertisers working with Group M cut budgets at least 10% during the first two months of 2009. Most Chinese TV stations report sales drops of 20 to 30%, and "newspapers are down even more," she added.
Consumer spending and therefore ad spending on smaller products, particularly cosmetics, remain stable, however and the market is sending signals that the worst may be over.
"Starting in April, it looks like some ad dollars are coming back. Quite a few TV stations we spoke to have been very encouraged about the number of April campaigns. Also, the Chinese government is doing everything it can to stimulate local consumption. We have confidence that during the second half of the year, China will bounce back and the second quarter of 2009 will not be as bad as the first quarter," Ms. Lee said.
Global spending also down
Global ad spending, meanwhile, is expected to drop 4.4% to $425 billion in 2009, compared to 2008 when spending was up 3%. This is also a much bigger drop than the 0.2% Group M forecast three months ago.
Group M expects a near identical drop of 4.3% to $155 billion in measured media spending in the U.S., rather than the 3% it predicted in December. Looking forward, Group M said the industry could see a drop of 6.8% in the U.S. in 2010.
London-based Adam Smith, futures director at Group M, said in a statement: "The 2008/2009 period is now a more serious advertising recession, in scale, duration and relative to the global economy, than the extraordinary 5.1% real-terms post-dot-com global advertising correction of 2001."
Rino Scanzoni, Group M's chief investment officer in New York, said in a statement that the further and more severe drop projected for the U.S. in 2010 was a direct result of marketing budgets that were "devised in the throes of the current recession."
He also said the stimulus package put forward by the government will not have an immediate positive impact on ad spending "because it does little to drive consumer spending in the face of high unemployment, a weak housing sector and a resurgence of commodity inflation in the short run."
Western Europe is looking at a 6.7% drop in ad spending in 2009, according to Group M, a significant change from the 1.7% it forecast in December 2008. The group said Germany is proving to be the most resilient market in the region.
Contributing: Ad Age reporter Michael Bush
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