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What Does A Shrinking Economy Mean?

The first two quarters of the year 2020 have been erratic. With the biggest health crisis of the decade threatening the welfare of people all over the globe, world leaders and local authorities are pressed to think of feasible countermeasures fast. After all, humanity’s fate rides on the actions we take at this critical time.

The Coronavirus Disease or COVID-19 has devastated an alarming fraction of the UK population. A disturbing 248, 293 cases have been reported in the United Kingdom, and the dreadful pandemic has taken the lives of roughly 14 percent of those affected. Although the number of new cases has been going down in the past couple of days, we’re still a far cry from totally eradicating the threat. This poses yet another problem to the great island nation – a recession.

Is The UK Economy Shrinking?

The short answer is YES. Even if we’re not yet at a point where the shrinking economy is evident, there is little to no doubt that it will happen. However, to better understand what this would mean for business owners and employees, let us first define what a shrinking economy is.

A shrinking economy happens when there is a drastic change in market activity. It means that consumer demand is lowering, creating an unhealthy surplus of goods, services, and human resources. This “demand shock” can bring about many secondary problems such as employee retrenchment leading to widespread job losses, as well as small business bankruptcy.   

You see, the structure of our current economic system is quite susceptible to sudden changes in the external environment. A small change can cause the status quo to fall apart entirely. It’s a vicious cycle. The COVID-19 pandemic has left the rest of the world with no other choice but to lock themselves behind closed doors. This leads to a drastic decrease in the market activity, which in turn results in plummeting sales and income. Without income, businesses cannot continue to support employees’ wages which then leads to job losses and employee reduction. And guess what happens next when people lose their jobs? A further recession in market activity.

Again, it’s a vicious cycle.

At this time, the national government works hand-in-hand with local authorities to support the livelihood of the people. There have been grants and fund schemes launched to help small to medium-sized businesses as well as self-employed individuals who are suffering due to the extended lockdown period. By providing these monetary grants, the UK government hopes to help businesses and entrepreneurs stay afloat during this time of crisis. However, despite their efforts, a recession is to be expected during and even after the pandemic has been averted.

How Should You Deal With The Shrinking Economy?

Diversification and strategic allocation of resources are crucial for businesses to practice at this time. There is no telling when this crisis will end, and even if it does end soon, the market activity won’t immediately return to normal. In fact, it is safe to assume that this is the “new normal” and your business, should you have one, must learn to adapt to this new environment.

Diversifying your products and services to meet the requirements of the “new normal” is something you should consider if you want to keep the income rolling at this time. Allocate grants and loans received from bounce-back schemes of the government strategically. Anticipate the economy to shrink even further than it has now and plan your contingencies ahead of time to protect your company during this uncertain period.

If you want to learn more about how the shrinking economy can affect your business, you can in touch with Annette & Co. for FREE business advice. Better yet, you can tune in to my Podcast – Uncover Wealth Radio – where I talk about the latest updates on UK Businesses and COVID-19 every workday at 11 in the morning.

For more information about the recession, be sure to check out Episode 122 of Uncover Wealth Radio. If you’ve missed the LIVE broadcast, you can always revisit the episode here on our website, Annette & Co.  

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