Dollars flow online as marketers panic

The online search powerhouse Google confirmed yesterday it was witnessing a "significant inflow" of advertising revenues from large companies as they nervously shifted their budgets out of mainstream media, generating more immediate returns on investment.

But results from a tracking study of consumer spending intentions released this week by the forecaster Foreseechange says industry has become too gloomy and has overreacted to economic uncertainty, predicting retail sales growth will finish at 5-6 per cent for 2008, well above the last big retail slump in 2005. Retail sales is a key indicator for advertising demand.

The director of Foreseechange, Charlie Nelson, said that despite eroding business confidence and deteriorating home financing levels, retail sales would hold up for the rest of the year unless there were further rises in interest rates and fuel prices or a slump in house prices. Mr Nelson said household goods and furniture retailers would struggle but most other retail categories, including motor vehicles, would escape a demand crunch.

"Business has turned very negative but it's an overreaction," Mr Nelson said. "Things are not as bad as they seem."

The executive chairman of the diversified marketing services business Photon Group, Tim Hughes, concurred. He said there was no evidence among Photon's big clients that they were slashing marketing and media budgets. "It's not the disaster everyone thought might happen," he said. "Everyone stopped spending in February but April picked up and things are looking good for the June quarter."

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