WPP's shares crash: Do its troubles show something nasty going on with the global economy?

Some £2bn was wiped off the value of the company after it clipped sales forecasts for the second time in a year

WPP boss Sir Martin Sorrell now expects full-year net sales and revenues to rise by just 1 per cent tops (Getty)

A tough day at the office for ad giant WPP, which endured its worst sell-off since 1998 in the wake of a sales warning alongside its first-half results. More than £2bn was wiped from the value of the company as its shares lost more than 10 per cent of their value.

The group did increase sales, but not to the extent analysts expected. That sometimes happens, but what really worried the City’s scribblers, not to mention investors, were the company’s forecasts.

Boss Sir Martin Sorrell clipped them for the second time and warned on client spending, particularly by fast-moving consumer goods outfits, which supply a third of its revenue.

He now expects full-year net sales and revenues to rise by just 1 per cent tops. The previous guidance called for about 2 per cent.

Other ad giants have similarly missed forecasts of late, but the market took WPP’s results particularly badly.

Does this signify something nasty is going on in the global economy? After all, when things are looking dicey, it’s ad budgets that get hit first.

Or are the industry’s woes, and WPP’s in particular, down to the ongoing disruption of the ad market by developments in the digital world, combined with some prudent belt tightening by clients?

There’s a bit of both at work here.

There are certainly plenty of reasons to be concerned about the global economic outlook. Donald Trump’s supposedly pro-business agenda, that so excited Wall Street when he took office, has fallen flat, and the corps of tame CEOs appointed as counsellors have deserted him in the wake of the ugly events in Charlottesville involving neo nazis, and his reaction to them.

Some American business leaders took Mr Trump for one of their own. Turns out that he’s something else, something darker, as many commentators warned.

Meanwhile, Britain’s Government is making a populist hash of Brexit, and global tensions are high amid heightened concerns about Afghanistan (as ever), the Middle East (ditto), Venezuela, Ukraine, and in particular North Korea.

Faced with all that, there is every reason for companies to take a cautious stance when it comes to their spending decisions.

However, the disruption the ad market is undergoing shouldn’t be underestimated. WPP has been hit by rivals’ aggressive discounting, the way people consumer media continues to change, and the power of Facebook and Google is worrying an awful lot of people.

These developments have also had an impact and will continue to do so. What is the most effective way to reach consumers in this new world? That’s a question that has agencies and their clients scratching their heads. And some of them are sitting on their hands.

We are certainly entering a rockier period (especially here in the UK), exacerbated by populist politicians. The International Monetary Fund has certain taken note, with its recent downgrades to its growth forecasts for America and Britain.

But the fall in WPP’s shares is still probably overdone. The results don’t make for pretty reading, and the company was always going to endure a correction.

But it’s worth noting that the dividend has been held, and while his pay package is absurd, Sir Martin knows his onions. If anyone can cope with sailing into choppier waters, it’s him.

Given that the market always overdoes these things, you might even see WPP tanking like this as a buying opportunity (some analysts certainly think so). But you would need to have a strong stomach to do so.