The economic environment
The economic environment consists in a number of external factors that
affects in some degree the activities of a business. Factors such as
unemployment rate, inflation, interest rate and productivity affects the
business activities. The economic environment of business play an
essential role in determining the success or failure of a business. To
maintain a healthy economy the banks and governments adjust their
behaviour (new laws and regulations) according to what is necessary.1
The economic stability is very important for an economy to be healthy.
Every company wants to be in a stable environment and to remove any
additional pressure on the finance department of a company. An economy
with a constant growing and low and stable inflation will be considered a
stable economy. An economy with regular large recessions, numerous
financial crises or a very high and variable inflation, will be considered an
unstable economy. The importance of the economic stability can be seen
in the fact that the company will be able to make reliable long term
predictions. For example if into an economy there is no major changes a
company can anticipate easier their expenditure.
Growth
The growth represents a period of time when the products and services
produced/offered are consumed at an increasing rate. When consumption
of goods and services increases, companies are encouraged to produce
more, producing more they will need more employees. With more people
working the unemployment rate will drop, and this will lead to higher
incomes for the population, this high income makes them to afford to
spend more. This extra income resulting in an increase of consumption of
goods and services meaning that there is a high level of demand. During
the growth is also possible the wages to be increased. Moreover it is a
favourable time to expand a business or opening new business as the
demand is high.
Recession
The recession represents a period of temporary economic decline
(economy goes down) during which the employment and business activity
are reduced, generally identified by a fall in GDP in two consecutive
1 http://www.mbaofficial.com/mba-courses/business-environment/what-is-the-
economic-environment-of-business/
The economic environment consists in a number of external factors that
affects in some degree the activities of a business. Factors such as
unemployment rate, inflation, interest rate and productivity affects the
business activities. The economic environment of business play an
essential role in determining the success or failure of a business. To
maintain a healthy economy the banks and governments adjust their
behaviour (new laws and regulations) according to what is necessary.1
The economic stability is very important for an economy to be healthy.
Every company wants to be in a stable environment and to remove any
additional pressure on the finance department of a company. An economy
with a constant growing and low and stable inflation will be considered a
stable economy. An economy with regular large recessions, numerous
financial crises or a very high and variable inflation, will be considered an
unstable economy. The importance of the economic stability can be seen
in the fact that the company will be able to make reliable long term
predictions. For example if into an economy there is no major changes a
company can anticipate easier their expenditure.
Growth
The growth represents a period of time when the products and services
produced/offered are consumed at an increasing rate. When consumption
of goods and services increases, companies are encouraged to produce
more, producing more they will need more employees. With more people
working the unemployment rate will drop, and this will lead to higher
incomes for the population, this high income makes them to afford to
spend more. This extra income resulting in an increase of consumption of
goods and services meaning that there is a high level of demand. During
the growth is also possible the wages to be increased. Moreover it is a
favourable time to expand a business or opening new business as the
demand is high.
Recession
The recession represents a period of temporary economic decline
(economy goes down) during which the employment and business activity
are reduced, generally identified by a fall in GDP in two consecutive
1 http://www.mbaofficial.com/mba-courses/business-environment/what-is-the-
economic-environment-of-business/
