CLOSE-UP: LIVE ISSUE/ECONOMIC FORECAST - Are we heading for another economic recession? Sir George's prediction has divided opinions in the ad industry

It might have been a coincidence, but the cold snap that suddenly descended on Britain after the Christmas period certainly suited the economic message that was being delivered by the governor of the Bank of England.

It might have been a coincidence, but the cold snap that suddenly descended on Britain after the Christmas period certainly suited the economic message that was being delivered by the governor of the Bank of England.

Sir Edward George has gained a certain notoriety among City economists for a muted message of careful optimism that he has reliably reiterated over the past five years of economic prosperity.

This year, for the first time, he injected a rather seasonal chilly note into the proceedings, principally by looking with ill-disguised dread at the US economic slowdown.

'I think it is still true that if America really sneezes, we all catch cold,' he said. 'We've had a good run. Enjoy it while it lasts because you cannot always expect it to be as good.'

Not, on the face of it, a rousing New Year message for British business.

This is likely to mean bad news for advertising, since the industry tends to be one of the first to suffer from the chill winds of economic downturn.

After all, trimming down their marketing budgets is the default response many companies make to any slight decrease in consumer spending.

But do the agencies share this sense of incipient general economic malaise? And should they?

BMP's chairman, James Best, has no doubts. 'I'm a bit of an Eeyore at the best of times and - unfortunately - this isn't the best of times,' he says. 'I'm gloomy about the coming year for two main reasons. Firstly, we saw a softening in media rates and revenue growth even at the end of last year, indicating that clients have already started to pull their horns in, and that will certainly ripple back to the agency sector.

'Second is the definite slowdown in the US, which looks like heading into recession. That will definitely make it over here, it will just take a little longer. I think we are, at best, looking at a shutdown in the rate of growth. At worst, we are staring down the barrel at full-blown recession. It hardly helps that the prosperity of recent years and full employment have contributed to considerable wage inflation in the industry.'

Of the two principal factors that have helped shape the last economic year - the slowdown in the rate of growth of the US economy and the demise of the technology, media and telecommunications sector - it is undoubtedly the latter that most colours advertising agency outlooks for 2001.

Unfortunately, the problems with technology companies show no signs of abating. The Nasdaq, the US high-tech stock market, has just suffered the worst year of its 30-year life - finishing 39 per cent down over the past 12 months and almost 52 per cent off its all-time high. If anybody doubts the effects of this, they need look no further than the Superbowl advertising schedule in the US.

Last year, the January extravaganza was dominated by the dotcoms. Yet of the 17 web-related companies that bought ads for last year's game, no fewer than seven are now out of business. This time only three internet companies - E-Trade and the competing job websites Monster.com and Hotjobs.com - have so far forked out the dollars 2.5 million necessary to buy a spot.

'There's little doubt that the days of rampant inflation caused by dotcom mania are over,' the Publicis chief executive, Richard Hytner, concedes.

'But we're still predicting a healthy increase in revenue this year. It might be a tough year in terms of mainstream advertising but the underlying picture in direct communication channels is healthy. Dotcom revenues will drop but our customers simply can't afford to switch off the communication with their customers.'

Despite his gloom, Best agrees on this point. 'It's true that there was a dotcom splurge last year but much of it was sound and fury rather than a long-term spend and all of the major companies have now invested in their digital and internet capacities.

'This might just be the year when we stop referring to internet or new-media companies because everyone is an internet company. Nevertheless, it's hard to see the changes here as being beneficial to agency business.'

But if prospects for internet advertising remain bleak, new mobile data technology should help shore up the telecoms spend. GPRS is a non-voice service that enables faster information transfer than previously available.

However, the danger is that mobile phone companies will opt not to push the system but reserve adspend for a bigger third generation launch. Meanwhile, an ominous study by the independent Forrester Research predicts that the 66 per cent penetration of mobile phones in the UK is due to peak shortly.

'The health of the telecommunications sector is crucial to agencies enjoying a good year,' Bates' chief executive, Toby Hoare, believes. 'Personally, I think it is one of three categories that will continue to show above average growth this year, and that should help to mitigate for the bursting of the dotcom bubble.

'Add to this the growing spend of portal providers such as Yahoo!, the increasingly aggressive retail sector and the staggering potential of financial services advertisers - and I certainly don't subscribe to the gloomy views of the coming year.'



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