The economic environment

The current state of the economy can affect how a company performs. The rate of growth in the economy is a measure of the overall change in demand for goods and services, Other than economic influences include:-

•    Taxation levels
•    Inflation rate
•    Balance of trade and exchange rates
•    Level of unemployment interest rates and availability of credit
•    Government subsidiesOne should also look at international economic issues:-
•    The extent of protectionist measures.
•    Comparative rates of growth, inflation, wages and taxation
•    Freedom of capital movement
•    Economic agreement in various trading blocs such as the EU, COMESA.
•    Relative exchange rates.    
•   A downturn in the economy can lead to corporate failures across a number of sectors. The worst hit are suppliers of goods with high income elasticity demand eg. house builders like Housing Finance.

Deflationary government fiscal policy (low government spending, high taxation and a planned budget surplus) and central bank monetary policy

High interest rates, restrictions on money supply expansion and revaluation of currency can adversely affect a business. This is because they influence demand for goods both domestically and internationally, cost of capital and the level of profitability which in turn affects dividends and retained earnings level.