China Will Take Over US as No.1 Consumer: WPP CEO

China will take America’s title as the world’s biggest consumer and the early signs of economic recovery will appear in the fourth quarter but from the East, not the West, Sir Martin Sorrell, CEO of WPP, told CNBC.

Sir Martin Sorrell, CEO of WPP

WPP sees China and other emerging markets in South America, Africa, the Middle East and Russia, as critical growth areas for the advertising group. Instead of waiting for the American consumer to emerge from the economic slump, Sorrell is betting on the Chinese grabbing the consumer mantle.

“This is an unstoppable, irreversible trend,” Sorrell said. “I don’t know when that’s going to be, (but) it must do at one stage by the law of averages,” he said.

Sorrell expects the global economy to show a “recovery of sorts” in the fourth quarter of 2009 and early 2010, but “the initial signs of the recovery will not come from the West, they will come from the East.”

The Chinese have massive construction projects, which will act as economic stimulus by providing job opportunities, which the West doesn’t have, according to Sorrell.

But China is not decoupled from the rest of the world as it does depend on exports, he conceded.

China Vs the US

Roger Nightingale, strategist from Pointon York, disagrees with Sorrell’s predictions and expects the US to beat China in the recovery phase.

“The American economy is the one that’s looking best in the world at the moment,” Nightingale said.

Investors should not look to China for a catalyst to global recovery because the nation’s weak import data point to a sluggish activity ahead, according to Nightingale.

“The idea that the Chinese economy is strong seems to me to be bizarre and I suspect that we’re going to get data out fairly shortly that brings it into line with reality,” he added.

Nightingale said that the US economy could return to growth within 3-to-5 months, albeit pretty anemic growth. Sorrell thinks that the second half of 2009 will be better than the first half, but admits it is a “very difficult year.”

Even though Sorrell is less bullish on the US economy compared with China, he does point out that “the US is remarkably flexible” with strong entrepreneurship and in a better position that Europe.

Inflation Down the Road

Governments can either “take the hard dose of medicine,” with higher taxes, lower spending and higher unemployment, or inflate their way out of recession, Sorrell said. He expects governments to go down the inflation route and predicts “significantly” higher interest rates to come.

The final impact of the “unprecedented” stimulus packages is impossible to predict as they have never been tried before, he said.

Despite the economic woes in the short term, Sorrell is “extremely bullish” on the advertising industry in the long term. He thinks that new media and emerging markets will be key to that success.

Sorrell also thinks that the recent rise in oil prices was inevitable and has further to run and the stock market strength is just a relief rally.

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