The Impact Of Slow Economic Growth On Business

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What's going on?

The world’s largest advertising company, WPP, reported its results on Friday. The results themselves were pretty good, but CEO’s broader comments about the world’s economy got just as much attention.

What does this mean?

WPP’s very well known CEO, Sir Martin Sorrell, has a front row seat to how companies in various different industries and geographies are faring because his company provides them with marketing services. In his comments on the economic outlook, he strongly reiterated that we are living in an age of low economic growth. Specifically, he said that slow growth has affected companies’ ability to raise their prices and, without being able to raise prices, the only way to increase profit is to decrease costs. That, in turn, affects spending on advertising, which obviously presents an issue for his firm. It doesn’t only affect advertising of course: it also means firms are less likely to hire new workers and do things like increase spending on developing potential new business areas (to name just a few other examples).

Why should I care?

For the stock: In Sir Martin’s words, WPP is doing well in a difficult environment. It reported sales growth of just over 3%, which was roughly in line with expectations. Some major events in 2016 that will mean big marketing spends, like the Olympics and the US Presidential election, should help it grow at about the same rate once again.

For you personally: Should you really care about all this talk about “low growth”? Yes! In a slow economy, it’s difficult to get hired out of university, change to a more interesting job, get a pay raise, make money off your investments – and lots of other things. Remember, Sorrell is talking about the world as a whole. The good news for Americans is that its economy is growing better than most and the jobs picture is improving (see our other article). Things are a little dicier in Europe, although it’s certainly doing much better than it was a few years ago. Britain is somewhere in the middle.  

Originally posted as part of the Finimize daily email.

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