The European ink report: European ink manufacturers are bracing for a challenging year, although there are opportunities for growth in some regions and markets.

Ink makers and their customers in Europe are bracing themselves for a tough year in 2008 as a slowdown in large sections of the region's economy starts to hit demand for printed products.

However, the impact of a fall in economic growth could be less harsh than expected. Continued buoyancy in the economies of many Eastern European countries, many of them members of the European Union, could cushion the effects of a downturn in business in much of Western Europe.

Russia, whose printing sector is supplied by ink companies in Western Europe, is, for example, expected to enjoy high growth this year, making it one of the most vigorous of the world's emerging economies along with those of China, India and other newly industrialized Asian countries.

Within Western Europe, a credit squeeze, stemming from the subprime financial crisis in the U.S. last autumn, will increase pressure on the already stretched cash resources of many printing companies at a time when there will be fewer opportunities for boosting sales and profits.

Curbs on bank lending could also result in less investment in new or upgraded printing equipment which can often trigger demand for higher quality inks.

"It is going to be quite a volatile year and one of the most unpredictable for some time," said Felipe Mellado, corporate vice president at Sun Chemical Europe. "Every year has its uncertainties but the outlook for this one is much more insecure than usual.

"We saw the first signs of the effects of a drop in consumer demand in the fourth quarter of last year and this has now continued into January and February," Mr. Mellado added.

Last year, volume sales of printing inks in Europe as a whole went up by around 2 percent. But in 2008, Sun Chemical is expecting growth to be relatively static.

[ILLUSTRATION OMITTED]

Economic Forecasts

Official forecasts for average GDP growth in the EU's 15 Western European member states have had to be revised downwards since the financial turbulence of last autumn.

In November, the European Commission, the EU executive, was predicting 2.2 percent growth in the 15 countries in the zone of the euro currency in 2008, compared with 2.7 percent in 2007. Now economists are predicting growth rates as low as 1.5 percent amidst signs of a sharp downturn in consumption in the key economies of France and Germany.

In the UK, which is the largest EU country outside the euro zone, consumer confidence has been undermined by slumping house prices while some segments of its financial services sector have been struggling.

A major concern with the EU, especially within its euro area, is the inflation rate which is beginning to rise steeply, partly because of high prices for energy, food and other basic needs.

Inflation in the euro zone has surged from below 2 percent in mid-2007 to 3.2 percent in January this year. This has raised fears about a period of relatively high inflation which would depress economic activity even more.

"Much of the printing industry and its suppliers have been able to keep the value of their sales at above that of inflation," explained one analyst. "But that will be much more difficult if inflation stays well above 2 percent."

Nonetheless, despite worsening economic conditions, there are likely to be pockets of healthy economic growth in Western Europe this year. Three of the four Nordic countries of Sweden, Denmark, Finland (all EU member states) and Norway (a non-EU country) are expected to record growth rates averaging 2.5 percent, a decrease from the level in 2007 but well above the predicted average for this year in the euro zone.

Meanwhile some Eastern European countries are likely to continue to achieve growth rates at least two to three times higher than even comparatively fast expanding Western European economies. In late 2007, Slovakia has a year-on-year growth rate of 14 percent and Latvia almost 10 percent, while with Poland and the Czech Republic, it was more than 6 percent.

The Russian economy, bolstered by high global oil and gas prices, is forecast to grow by 7 percent this year against 8 percent in 2007.

The dynamism of the Eastern European economies is important to ink producers and other printing industry suppliers in Western Europe because of Eastern Europe's relatively high dependency on imports of consumables and other printing materials.

On the other hand, within Western Europe itself, some parts of the printing industry are likely to be more resilient than others in response to the downturns in their local or regional economies, particularly if they have been able to restructure their businesses over the last few years.

A survey by the British Printing Industries Federation (BPIF) of its member companies published at the beginning of this year found a surprisingly high level of optimism among the majority of them despite prospects of a deteriorating UK economy.

"(This) is based on their belief that over the last couple of years they have taken measures to ensure that their companies are robust enough to face any downturn and that, as insignificant players in the macro-economy, if they look after themselves, there should be a market for them," said a report on the study.

The Impact of the Internet

Throughout Western Europe, many printers are continuing to have to cope with intense competition from electronic communications technologies. The plight of the print media has become so serious that organizations representing printers and their suppliers have come together to make advertisers, marketing executives and other media users more aware of the benefits of printing.

Last autumn, the European Association of Fine Paper Manufacturers (Cepifine), backed by printer and other trade associations, launched a 5 million [euro] ($7.5 million) campaign in Western Europe based on the slogan Print Sells. It was aimed at around 500,000 people in marketing and advertising, with the main targets being marketing and communications managers, account managers in advertising agencies and media planners in media purchasing agencies.

The emphasis in the campaign was on the physical advantages of print with the message "Print. Your brand is in their hands." The focus on "touch and feel" was a way of highlighting its effectiveness, according to Intergraf, the international confederation of printing and allied industries.

Cepifine acknowledges that relatively sluggish growth in parts of the print media has been due to the success of the electronics media, in particular the Internet.

This has been demonstrated by the rapid penetration of the Internet in the Western European advertising market. Last year it achieved a 9 percent share of the region's total advertising sales, a fourfold rise in five years, according to figures from London-based media agency ZenithOptimedia.

In the UK, Western Europe's largest national advertising market in terms of total expenditure, the Internet's share rose to 19 percent in 2007. Its share was also high in the Nordic countries, accounting for 18 percent of advertising sales in Sweden and 17 percent in Denmark.

"The Internet now has a bigger share of total advertising expenditure in Western Europe than outdoors advertising and radio," said Jonathan Bernard, ZenithOptimedia's head of publications.

"Advertisers had previously been exploiting the Internet's direct response and interactive mechanisms," he explained. "But now they are using it as a branding vehicle because of the larger numbers of people using the Internet and especially due to the scope for eye-catching visuals like videos provided by the widespread access to broadband."

The Internet has also been the main driver behind the comparatively high increases in advertising expenditure in Western Europe. ZenithOptimedia is forecasting growth of nearly 5 percent this year, similar to the increase in 2007.

Magazines have been losing revenue as advertisers switch to the Internet for brand building. In 2007, advertising expenditures on magazines was static although this year it is expected to recover with a rise of 1.8 percent.

Newspaper publishers in Western Europe managed to keep their newspaper sales roughly in line with inflation in 2007, with an increase of around 2 percent, which is forecast to be repeated this year.

Revenues from outdoor advertising sales in Western Europe, which expanded by 4.5 percent last year, is forecast to go up by 4.2 percent in 2008. But it is no longer an exclusively print media sector because of the arrival of digital displays which advertisers are regarding as an effective alternative to printed large-format advertisements because they can be produced far more quickly.

Gains in Eastern Europe

The advertising market in Central and Eastern Europe (CEE), which excludes Russia, was the fastest growing in the world last year with an average rise of 7.6 percent, according to ZenithOptimedia. This even surpassed that of the rapidly expanding advertising market in Asia Pacific. Despite a slight dip to 7.2 percent, CEE is predicted to record the top growth rate again this year.

In the CEE, newspaper advertising is forecast to rise by 8 percent this year against 5.4 percent in 2007, while magazine advertising should go up by 7.5 percent against just under 9 percent last year. In Russia, growth in advertising in the print media will slow to 24 percent after soaring by 28 percent in 2007.