should be taken with a pinch of salt.

Thomson Intermedia revealed last week that financial services companies had already cut back considerably on traditional advertising (Marketing, 5 December). However, the pain will not be restricted to the markets directly affected by the credit crunch, of which Northern Rock was the first high-profile UK casualty. According to Gavin George, head of retail at Ernst & Young, we are in for 'a fairly bleak' first half of 2008.

Moreover, while ZenithOptimedia's outlook for advertising next year appears to be optimistic - it predicts that the global ad market will grow by 6.7%, up from 5.3% this year, boosted by the Olympics, US elections and the Euro 2008 football championships - behind the top-line figures, the picture is less encouraging. The agency acknowledges that most of the growth will come from developing rather than mature markets.

In the UK, for example, the agency expects advertising spend to grow 6.2% next year, helped by a rise of nearly 26% on on-line. Jonathan Barnard, head of publications at ZenithOptimedia, predicts that online investment, which already represents more than 15% of total UK adspend, will account for more than 20% of the market within two years.

However, traditional media advertising is static or in decline. When adjusted for inflation, spend on newspapers, magazines, radio and cinema is likely to be lower next year than this, with TV showing real-term growth of just 0.2% in the UK, according to ZenithOptimedia. 'In the past two-and-a-half years we have had an artificial downturn, caused partly by Contract Rights Renewal, which has forced TV prices down, and by price pressure on traditional media caused by the growth of the web,' adds Barnard.

ZenithOptimedia's predictions are easily the most optimistic. Those from Universal McCann are more gloomy Robert Coen, US-based director of forecasting, paints a picture of a steadily declining ad market. Advertising's global share of GDP has fallen from 2.52% in 2000 to a predicted 2.05% this year and 2.04% next,' says Coen. He adds that, with the exception of online, a significant surge in advertising in 2008 does not seem likely, given the atmosphere of caution and concern about profits. Coen predicts that adspend in the UK will rise 3.5% next year, compared with 4.6% for the global ad market.

However, Russell Place, chief strategy officer for Universal McCann London, believes the UK gloom could be overstated. 'In financial services, for example, the banks are getting rid of the bad news and writing off their debts this year, which, arguably, allows them to start next year with a clean slate. There may be a cooling-off of mortgage-related advertising, but the battle for pensions, investment plans and insurance will continue.' He adds that predicted interest-rate cuts will boost consumer demand for goods and services.

Place also points out that history suggests that those firms that sustain or increase adspend through recession emerge stronger than those that cut it. But he acknowledges that marketers are likely to allocate an increasing proportion of their budget to more direct media - particularly the web - where the cost of acquiring customers is lower than traditional media. 'Firms will be thinking much more carefully about how they communicate next year,' he says. 'Much depends on whether the current credit crunch is contained, but I am cautiously optimistic.'

If independent economists are to be believed, this optimism is misplaced. Chris Williamson, head of economics at NTC Economics, which compiles the Purchasing Managers' Index as well as the IPA's Bellwether Report, believes the effects of the credit crunch are already evident. 'Growth in the service sector

is slowing much more quickly than anticipated,' he says. 'Much of that is due to rising interest rates, and consumers will be hard-hit next year by having to switch from advantageous mortgage rates, the introduction of tighter lending criteria and the cooling of the housing market. Consumer expenditure is a key indicator of display advertising.'

Corporate profitability, which Williamson predicts will be hit by weak demand, is another indicator of the outlook for display advertising. It will suffer at the hands of higher borrowing costs and rising oil prices. In addition, he expects the job market to slow next year as companies seek to contain costs and curtail expansion because of the higher costs of borrowing.

'This will affect recruitment advertising, which accounts for 40% of the advertising market,' he adds. 'The Advertising Association was predicting in September that the ad market would grow 3.8% in 2008, but adjusted for inflation, that is almost flat. I do not see where even that small growth will come from. 2008 will be tougher than 2007 and I would expect a significant fall in ad expenditure in real terms.'

The message for marketers is clear - unless they think very carefully about how to deploy what seem liable to be reduced marketing budgets to maximum effect, 2008 is likely to prove to be a long and hard year.

(Source: Media)