Economic Factors of the worldwide economy. A quick overview!

What are Economic Factors?

Economic factors are internal and external factors in the market that affect the economy, including interest rates, tax rates, laws, policies, wages, and governmental activities. These factors are not directly related to the business but influence the investment value in the future. Macro and micro economic factors affect the profit-making process of the company and its efficiency.

Economic factors are variables internal and external to the company that can have an effect on the profitability and efficiency of the company’s process. These factors could be tax rates, inflation, labor supply, exchange rates, recession, government policies, changes in law, etc.

It also helps companies and investors with when to invest, where to invest, and when to take money out from a particular company or sector, as changes in economic factors will affect the return on investment. There are various examples of economic factors that affect business and economic development.

Like life, change is the only constant in business and markets as well. Despite the fact that most external economic factors are beyond the control of even the policymakers of the country, they have to be kept in the foreground while decision-making. They can have an adverse effect on the profitability of the project, deal, or overall business.

The investor needs to be prepared for changes in economic factors and their consequences. By knowing the impact of economic factors, investors can make the right decision in terms of investment. These factors also help management make decisions and prepare for any positive or negative changes in the economy.

Economic factors that affect business as it is connected to business and influence the drive of business-like labor and cost are always controversial economic factors that affect the economy. Many countries have started outsourcing work from other countries.

Factors Affecting Business

1. Interest Rate: Interest rate is a major factor that affects the liquidity of cash in the economy. With an increase in investment, cash flow in the country decreases and results in a reduction in the country’s liquidity. Conversely, a decrease in investment cash flow in the country increases and increases the country’s liquidity.
2. Exchange Rate: The exchange rate comes into the picture in the case of export and import. Due to this, it affects international payment and the price of goods, affecting the economy.
3. Tax Rate: The tax rate is a crucial part of the economy. The tax rate affects the price of goods and their sales, affecting the economy.
4. Inflation: The increase in the demand price of goods or services increases inflation and money supply.
5. Labor: Labour and cost or wage are always the important economic factors affecting the economy. As a result, many countries have started outsourcing labor from other countries. The company begins its plant or production where labor is cheap.
6. Demand / Supply: Demand or supply of goods or services affects the economy as with the increase in demand price of goods or service increase, which results in inflation. With inflation, the money reserve in the economy increases with the rise in the supply of goods or services. The price of the same decreases. Demand and supply depend on each other.
7. Wages: Wages paid to labor or employee are a direct cost to the economy added to the cost of goods or services through which it affects the economy. Another way wages affect the economy is by increasing wages, consuming power, and improving consumer spending.
8. Law and Policies: With change or modification in the law, the economy of the country changes. For example, if the government makes a law that should ban liquor in the country, it will affect companies dealing with it, their employees, and shopkeepers, which affects the economy at a broad level. Similarly, any policy made by the government will affect the economy.
9. Government Activity: Government activity also affects the economy. So, for example, if the government promotes any industry like insurance or medical or technology, it will encourage that sector that boosts its economy, overall supporting it.
10. Recession: A recession affects consumers’ purchasing power, forcing companies to drop their goods or services.

Factors Affecting Development

Economic development is developed to raise the average standard of living in the country. Each of the below-given macro and micro economic factors influences the growth of the country. The following are economic factors affecting development.

• Education and Training: Education is the most important tool in the development of the country. Education helps one grow and develop, resulting in the development of the economy. And skill training helps one develop oneself, which results in high wages and the development of the economy.
• Natural Resources: Natural resources available like a tree, water, soil, oil, coal, metal, etc., affect the country’s growth as if resources are available in-country. Therefore, one will not pay for its export, and existing resources will help in job creation and increase the country’s wealth, improving the overall economy.
• Power and Energy Resources: Power and energy resources are required for industry, companies, and countries. In addition, one can manufacture biogas and natural resources like petrol, coal, gas, etc. These powers are required for the country’s development and will affect the economy and develop it.
• Transportation: Transportation has a crucial role in economic development as the circulation of one good or service good means of transport is required. If a country has good means of transportation, it will increase the reach of goods or services to consumers, which will result in the country’s economic development.
• Communication: With the development of science and technology, consumers depended too much on technology. Therefore, communication helps in the company’s expansion and growth. These days, companies are using modes of communication like mobile, internet, etc., to promote their goods and services, which leads to an increase in sales and a resulting economic development.
• Levels of Inward Investment: Developing countries that can attract inward investment can see significant growth in development due to higher levels of capital and benefits of attracting multinational companies into their economy. For newly industrialised countries (NICs), inward investment has played a significant role in increasing economic development.
• Levels of savings/capital: In growth models, levels of savings and capital are seen as a key factor in determining economic growth. Higher savings enables a virtuous circle of increased investment, higher growth, and therefore, higher savings.
• Political stability / Law and order: Political stability and the protection of private property was ranked as the most important factors for encouraging firms to invest in developing economies. Any sign of instability increases the economic and personal risk of investing in developing countries.

Finally, other factors to take into consideration when evaluating the economic performance as a whole from a global perspective should include other items, such as:

1. Globalization and international trade dynamics
2. Technological innovation and productivity gains
3. Demographic shifts and changes in the labor force
4. Fiscal and monetary policies
5. Access to capital and investment
6. Commodity prices and supply chain issues
7. Consumer spending and confidence
8. Geopolitical stability and policy uncertainty

Therefore, we conclude that the economic performance of the global economy as a whole, or dissected by region is more complex to evaluate than what we can anticipate. Especially at this time, when many factors are intertwined by region and also globally. However, one thing is for certain, if the individual economies of the countries are marching well, then the global economy should be fine as a whole.