External environment theory

External environment illustration


If GDP is growing at a very low rate, the terms ‘recession’ or ‘downturn’ are usually applied. During this time the rate of economic growth begins to fall. Due to the decrease in growth, unemployment levels rise, this leads onto even lower demand growth. Businesses will find it increasingly difficult to push through price increases, causing the rate of inflation to fall. Many businesses will see a fall off in the growth of sales; profit growth will also falter and may even become negative. The demand for imported goods will fall as the rate of growth in overall spending by UK customers slows.