Germany has the largest economy in the European Union, and that means their economic situation matters significantly to the region. In the first quarter, the economy had been growing because of domestic factors like higher household spending, strong data for construction, and machinery investment. This growth was dramatic, after the greater part of 2018 threatened a severe recession to the German economy. In the second quarter, the economy of the country has been shrinking, and this has raised worry among economists and the general public.
Economists predicted the primary reasons for the shrinkage of the economy. The factors which led to the rapid expansion of the economy in the previous quarter are expiring or being reversed. To add to this, there is a lot of uncertainty linked to the departure of Britain from the European Union. Since Britain was a significant economic player in the union, Brexit is likely to lead to severe financial consequences for all the countries involved. This has forced people to take precautions that unfortunately contributed to the shrinkage of the GDP.
How Does a Shrinkage in GDP Affect Businesses
Since there is little economic activity in this quarter, businesses are likely to cut back on their expenditure, and this means other providers of goods and services may experience reductions in profits. Smaller firms will generally suffer because of a reduced consumption rate among the population.
The current shrinkage of the GDP has not been going on for many months, and that means companies are unlikely to lay off their employees. It is possible that they may be waiting for the problem to fix itself. Top economists from Europe have expressed optimism that natural market forces will regulate this shrinkage.
How Can You Overcome the Shrinking German Economy?
There are certain things you can do to overcome the shrinking German economy. You should first reduce your expenses and cash outflows. One way to lower your costs is to negotiate a lower monthly rent on your business premises. Many landlords will consider your request in this economic climate since fewer people are looking to start businesses in the country. If necessary, you can offer to sign a longer lease in exchange for a lower rent. You can also inquire whether local utility providers have any deals for small business owners. Many of them will be happy to get new customers, even if they have to make a sacrifice on the profit margins.
To make sure your business stays afloat, you should consider leasing instead of buying. It may be more expensive to lease, but at least you will always have some money around. The point is to get through this shrinkage successfully.
As a business, you should continually shop for better deals. You can purchase cheaper products from abroad and transport them into the country using discount shipping services.
The German economy has suddenly started shrinking after a quarter of fast growth. The reduced GDP is likely to affect small and large businesses since there will be a reduction in the overall cash flow. This problem can be overcome by reducing your expenditure as a company. You should also avoid buying new products for the business as this will cost you a lot of money at once. A better alternative would be to buy used products or lease new ones.