Advertising spending grew in tandem with the economy's recovery last year, but the market is still playing catch-up, according to a report by economist Jim Power for the Association of Advertisers in Ireland (AAI) and Nielsen.

Expenditure by companies on advertising was 5 per cent stronger last year, while gross domestic product (GDP) expanded 4.8 per cent. But because the advertising market contracted more sharply than the wider economy in 2008, “there is still catching up required”, the report finds.

The strong recovery in business confidence over the past couple of years “has been slow to translate into a recovery in advertising expenditure”, the latest quarterly advertising monitor states.

Spending on advertising is still 10.3 per cent below the 2008 level. Within this, online advertising has mushroomed 159 per cent, while advertising on traditional media is 23 per cent lower.

However, overall expenditure is “now clearly in recovery mode”. In the fourth quarter of 2014, advertising expenditure totalled €295.6 million, which was 10 per cent higher than in the same period a year earlier and the highest spend since the final quarter of 2010.

Advertising expenditure fell more sharply than consumer spending on the way down, but is starting to recover at a faster pace than consumer spending. But consumer spending, the most fragile element of the recovery, is also now beginning to make a bigger contribution to GDP growth.

“Advertisers are clearly seeking to both benefit from and promote the recovery in consumption that is now starting to emerge,” writes Power. “This is particularly evident in the motor trade, where advertising levels are now very strong.”

The industry argues that rather than “spending” money on ads, advertisers are actually “investing” for their future success.