Gross Domestic Product: The Economy Is Not In Recession!

The United Kingdom's Gross Domestic Product (GDP) in the third quarter of 2019 rose by 0.3% with the service sector driving it forward ...

When I mentioned this to someone the other day, I was asked what it meant, and why they should be bothered. So, what is GDP and why does it matter to accountants, business owners as well as the man in the street?

"It is defined as the monetary value of all finished goods and services made within a country during a specific period!"

This value provides an economic snapshot of a country, used to estimate the size of an economy and its growth rate. When there is a negative GDP for two quarters it is often referred to as an economy in recession.

So, should I be bothered? Well yes, a recession could lead to less demand for your goods or services, a threat to jobs and confidence as a whole. In theory, if people feel worried/concerned/confused then they will cut back on spending.

GDP is just one of the factors we need to keep an eye on. Inflation, trends in unemployment, job growth and wage growth are all other forces of influence.

What can a Government do to prevent a recession?

- It can cut interest rates to make borrowing cheaper and encourage investment, print money, or give money directly to consumers (helicopter money)
- It can borrow the cheap money itself and spend more
- It can cut taxes to give consumers more money to spend
- It can provide financial stability such as guaranteed loans

It’s almost guaranteed that in the run-up to polling day, we shall hear a lot about the above!

It’s not just the UK economy that is showing signs of malaise either. Hong Kong’s GDP is being affected by the downturn in tourism from all those student protests, Germany is set to slide into recession with the decline of the auto trade, Italy (the EU’s 4th largest economy) continues to suffer from weak productivity, high unemployment, huge debt and political turmoil.

"Even China has continued to slow amid the trade war with the US!"

Things like the overall Gross Domestic Product of the United Kingdom may well be out of your direct control, but you can ensure you are prepared and have a nimble business that can react positively to any event and indeed be ahead of the game.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.