A chill wind on a summer’s day

Basking in the (admittedly spasmodic) sunshine of a British summer, it’s hard to conceive of the economic miracle which has been with us for the best part of a decade ever coming to an end.

For once, everything seems to be in line. Growth of the economy is apparently relentless, yet unattended by those traditional party-poopers, retail price inflation and a credit boom. Even the over-active housing market has cooled, for the moment. Call it a virtuous circle, the Goldilocks syndrome or simply a charmed life: it doesn’t really matter – the good news seems endless.

Which is why Sir Martin Sorrell’s warning this week about “cyclicality” (an ugly word for an ugly phenomenon) has brought an unseasonal chill to the air.

The warning was all the more unexpected because it accompanied a stellar set of WPP interim figures: profits, revenues and operating margins all achieved record levels and there are no visible signs of any slackening of the pace. So why the gloom?

There are, of course, technical reasons why Sorrell might wish to sound a note of caution – relating to the &£3bn acquisition of Young & Rubicam earlier this year. But underlying his message is a much simpler point, with a more general application. Growth rates of 15 per cent – as experienced by the likes of WPP – are unsustainable. Sorrell is sounding a timely note about “irrational exuberance”.

That’s far from suggesting we are pitching headlong into the next recession. Nonetheless, the removal of such growth cushions as the dot-com revolution, the Olympics and the US presidential elections is likely to have a Dead Calming effect in the year to come. The main UK stock market has already presaged as much by moving sideways over the past few months.

If this is indeed the direction we are heading in, it will have some significant side effects. One, paradoxically, is likely to be a quickening rather than slowing of the mergers and acquisitions cycle, as companies attempt to make the best of a tightening market. Expect to hear more rumours of the ‘True North to buy Cordiant’ variety.

A second will be a growing sense of caution, and not only within the sphere of consumer buying habits. Marketers, well aware that they are among the first to suffer in any downturn, often overreact to the first whiff of economic adversity. Out go the riskier projects – the flaky brand extensions, the new product development and, more worryingly, sensible long-term brand investment that has failed to reap short-term benefits.

They should, of course, resist any such tendency. The best way to deal with rough waters is usually to surf them. Or to put it another way, 1998 and even 1981 provide a better model for marketers than 1992.

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