Market Conditions

Market conditions relate to the attractiveness (or otherwise) of the overall market in which a business operates.

Market conditions tend to affect all businesses in an industry, although their ability to take advantage or, or respond to changes in market conditions will vary. Two key indicators of market conditions are:

1. Economic Growth (GDP)
2. Market Demand

Economic Growth (GDP)

Economic growth measures the value of output (activity) in the economy. 

Key points to remember are:

The level of demand in most markets is influenced by the rate of economic growth

Economies vary in terms of their “normal” long-term growth rate

A mature economy like the UK has a long-term growth rate of around 2-3%

GDP growth will vary depending on the state of the economic cycle

Market demand

Market demand measures how much of a good or service a consumer wants – and is able to pay for. For a business, market demand turns into revenues (sales).

Key points to remember are:

The size and growth rate of a market is a key indicator of market conditions

A fast-growing market will encourage new entrants as well as benefit existing competitors

A slow-growing or declining market makes market conditions much tougher, with competitors fighting for their share of weak demand