Over the past 24 years, Sir Martin Sorrell has transformed a London-based shell company into a marketing communications giant, a conglomerate with more than 100 companies specializing in everything from advertising to consumer research. WPP Group counts the world’s biggest brands—including Procter & Gamble, Coca-Cola Co., and Ford Motor Co.—among its clients.

But this knight has seen better days. While in 2008 the company saw profit growth, 2009 got off to a disastrous start, Sorrell says, as clients across the globe reined in spending. The company recently announced plans to lay off about 2 percent of its 112,000 employees.

And what about the challenge of advising clients on how to brand products in an increasingly digital and fragmented world, in multiple languages and cultures? As Sorrell will tell you, the changes in advertising, in both speed and complexity, are nothing short of extraordinary.

Condé Nast Portfolio reporter Matthew Malone interviewed the executive at WPP’s Manhattan headquarters. Sorrell, seated in front of a painting of a knight on horseback trampling an adversary, discussed topics ranging from economic recovery to why WPP and Google are no longer just “frenemies.” Here’s an edited transcript.

How do the current challenges in the ad industry compare with others you’ve faced?

I’ve been in the business now—it makes me sound very old—for 30 years or thereabouts. It’s as difficult as it’s ever been.

When do you think the economic recovery will begin? Didn’t you recently say the second half of 2009?

I said the second half would be better than the first half; 2009 is a write-off. I think maybe in 2010 we begin to see some relative improvement. But just recently, a few things happened that are pretty shattering, in my mind. It seems as though governments everywhere are flailing around, trying to find a solution. GE had said its dividend was safe but had to cut it in February, the first time since the Great Depression.

How much has ad spending among your clients declined this year?

I can’t discuss the specifics, but Group M, one of our companies, has just come out with a forecast that advertising will decline by 4 percent worldwide this year. Advertising is about 40 percent of our business. Our budgets are indicating minus 2 percent, which includes 60 percent in other industries, which are not as recession-prone.

Will things decline further before they bounce back?

I would be surprised if spending fell further than that in 2010. If anything, I would expect worldwide GDP to improve a bit, 2010 over 2009. And if advertising as a proportion of GDP stays constant, you would expect it to be either flat or up. I think the direct answer to the question is no, but you never know.

You work with some of the biggest companies in the world. How are your clients reacting to all of this?

Clients have become much tougher in terms of demanding efficiency and effectiveness. I’m not complaining about it. It’s just a fact.

Are your clients cutting your compensation or trying to squeeze you in any way?

Clients are putting a lot of pressure on the agencies. There have been one or two competitors who’ve cut their prices quite violently in order to win business. There is an amount of price competition, but of course that will only create further concentration in the industry.

Is WPP cutting its prices?

I don’t think we have that much, actually.

When will we get back to 2008 levels of ad spending?

If things decline 4 or 5 percent this year, you won’t recoup that in one year. So one would anticipate you’d have to wait until 2010 or 2011.