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Economic factors

Watch this video and read this article where we explore economic factors in a PESTEL analysis.

Economic factors include economic growth, percentage of unemployment, inflation, interest and exchange rates, and commodity (oil, steel, gold, etc) prices. These affect the discretionary income and purchasing power of households and organisations alike.

Boom and gloom

Economic factors may also affect the availability of credit and finance, and the capacity to purchase or access key resources. Generally, there are periods of boom, as experienced before the 2008/09 financial crisis, followed by periods of gloom, that temper the ability of organisations to produce, and consumers to buy.

A stable political climate with good governance is more likely to generate a conducive economic environment for businesses to thrive. In recent years, the failure of politics and governance in Venezuela and Zimbabwe led to an extraordinary rise in prices (known as hyperinflation). The subsequent contraction of these economies meant households and businesses were overwhelmed by additional costs, leading to mass unemployment, low creditworthiness to access financial facilities, and the unaffordability of foreign goods and currency.

Capital and labour flight

In these conditions, the flight of skilled labour and capital to more stable economies worsen the situation, and it can take decades to enter a new phase of economic recovery and growth, as evidenced in Rwanda after the conflict of 1994.

The key questions here are:

  • What economic factors will affect my organisation going forward?
  • How does the wider performance of the economy affect my organisation at the moment?
  • How is my organisation’s pricing, revenue and costs impacted by each economic factor?
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