An economic recovery is still nowhere in sight, while the business environment remains tough, says Sir Martin Sorrell.
We don't see any green shoots or recovery. And it could be that we (WPP) lag. I think we lead the downturn.
So if clients get worried about how business is going, they cut. We think unwisely, but they cut. On the other hand, as things improve, we lag. So clients don't invest more until they're sure there's a recovery.
WPP posted a 6.7 per cent fall in revenue in the first four months of this year. Analysts expect WPP to report weak second-quarter results, as the company said April and May were worse than the first quarter. Some 4,300 staff, or 3.7 per cent of its workforce, left the company in the first four months of the year, with over half leaving voluntarily.
Notwithstanding the grim outlook, Sorrell says that senior top executives are feeling better psychologically than three months ago. The head and the heart might be better, but it hasn't gone down to the hand which writes cheques yet.
Sorrell also noted some positive signs for corporate earnings in the second quarter and the first half of the year, as companies seek to cut costs amid ‘anaemic' revenue growth.
And while the second half of the year should look better than the first half, he believes 2009 will be a write-off, as there are no major international events such as the Beijing Olympics. In contrast, 2010 will be an easier year partly because of the Vancouver 2010 Olympic Winter Games, the World Expo 2010 Shanghai and the 2010 FIFA World Cup in South Africa.
Turning to the next year's mid-term elections in the US, Sorrell says the elections will have an important bearing on what's going to happen and what's happening in terms of fiscal and monetary stimulus.
He thinks there will be an economic recovery in 2010, albeit an ‘anaemic' one. He adds that the economic recovery will be ‘L-shaped', and while the recovery might turn out to be better than that, it won't be tremendously better.
I don't think it's a worry about if we will get out of this (economic recession); we will get out of this in the short term,
I think the worry is the longer term. And will governments have the courage to cut government spending to reduce deficits, increase taxes, risk putting up unemployment still further and the political consequences of doing that?