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Analysing the external environment: economic (GDP) (GDP (the value of a…
Analysing the external environment: economic (GDP)
economic factors include:
GDP and the business cycle
exchange rates
inflation
fiscal policy, taxation and monetary policy
more open trade v protectionism
GDP
the value of a countries total output of goods and services over a period of time (usually a year)
level of economic activity will change and GDP will change regularly
investment and spending= high GDP
will impact business performance, demand, business and consumer spending
affects confidence
leads to increasing employment
measured by a survey collected by aims
benefits of economic growth for businesses
increased profits, rise in average living conditions, new jobs, lower employment
increased tax revenues for government, improved business confidence, increasing capital investment, technological innovation
drawback of economic growth
increase in inequality, growing gap between rich and poor, high levels of relative policy
increased demand of imports and trade deficit and environmental impacts (pollution and congestion)
cyclical businesses
a business where demand is closely linked to the strength of GDP
examples: fashion retailers, electricals, house builders, restaurants, advertising and overseas holidays
counter cyclical
do well even when the economy is weak
examples: value retailers, pawnbrokers, fast food outlets and domestic holidays
the business cycle
Boom
high profits
low unemployments
demand>supply
high capacity utilisation
BOE may increase interest rates
shortage of skilled workers
recession
unemployment rising
less investment
demand falling, prices reducing
two successive quarters of negative growht
excess stock
increased bad debts
need low gearing and good quality to survive
slump
confidence decreases
high unemployment
low consumer spending
interest rates reduced furthur
prolonged negative growth
recorvery
increased demand= price rises
increasing investment
increasing cpapcity utilisation
rising business and confidence
job creation
costs may start to rise
strategies during a recession
diversification into new markets
restructuring and delayering to reduce costs and minimise risks
mergers and takeovers
greater investment- large firms may be able to get ahead by investing
sale promotion
cutting costs/ cost minimisation
importance of business cofidence
firms will only invest when they are confidence about their decision
business confidence is a self-fulfilling prophecy
optimising view will lead to investment in equipment and stock