The past few years for economies worldwide have been nothing less than a bolt from the blue. Most countries had just begun picking up pace post the economic downturn of 2009, only to find out that a far more tragic event had been waiting. The COVID-19 pandemic drastically affected living standards and crushed several economies beyond expectations.
However, now that the global economy is slowly transitioning from the pandemic to recovery, focusing on consumer behavior and purchasing power has become more crucial than ever. Since both factors heavily rely on economic reality. Hence, understanding the variables that will continue to affect the economic landscapes in the coming years has become critical for formulating an effective corporate strategy.
But before jumping into discussing these variables, it is crucial to understand that most economic trends will provide businesses with a fair share of challenges and opportunities. And it is the business leader’s responsibility to develop strategies that can immediately and effectively overcome any obstacle. Indeed, managing rapidly changing trends and conditions isn’t an easy task, especially if individuals lack training. Even managers and executives of top leading firms require a skillset to lead successfully. Therefore, if you want to expand your skillset, consider enrolling in economics for business leaders online courses from reputable institutions. It will help you gain a more comprehensive understanding of current economic trends and their influences on businesses globally.
Let’s look at four leading factors that will affect the new global economic period.
1. Globalization
Globalization refers to the convergence of technology, information, products, and jobs across different cultures and economic systems. There are three types of globalization:
- Economic globalization: refers to the growing interdependencies of other economies
- Political globalization: refers to the development of political systems on an international level
- Cultural globalization: refers to the standardization of cultures globally
Besides increasing access to different cultures, globalization plays an integral role in lowering the costs of products and improving living standards. Many businesses benefit from globalization due to increased access to new markets and new talent. Globalization also makes international recruiting and employee immigration simpler. Moreover, competition is also rising, forcing businesses to become more efficient. Companies start offering better services, more affordable products, and become more technologically reliant.
However, several experts also claim that globalization isn’t all good. It can lead to job displacements, exploitation of cheaper markets, and unequal economic growth. Moreover, there is also a higher chance of trade imbalances and environmental loots. Therefore, all business owners must carefully revisit their plans before putting them into action.
2. The COVID-19 uneven economy
Although labeling the Covid-19 Pandemic as an economic trend might come off as odd to some people, in reality, it is currently one of the most crucial factors affecting businesses worldwide.
There is no argument about the fact that the coronavirus Pandemic left the world in shambles! Studies show that almost 43% of small businesses temporarily shut down. Not only that, but more than 200,000 US businesses closed down permanently, resulting in significant losses in employment and income. Furthermore, the world bank reported that one-fourth of companies experienced a 50% reduction in sales, and 65% of businesses had to adjust payroll by cutting down wages.
Also interesting: Global Connectivity and the Digital Economy – A Comparative Analysis
The pandemic lasted longer than anyone anticipated. And even though, by now, most businesses are well-aware of the consequences and have set strategies in place, being cautious is still essential. Make sure to take full advantage of digital marketing. Invest in online marketing channels like blogs, email newsletters, and social media promotions for higher reach. Brush up your virtual selling skills; train your employees to interact with customers online. Lastly, prioritize authentic communication with your customers and let your network know what you are doing.
3. Increasing public debt
Increasing debt is far more harmful than good for a country. Public debt rises primarily because a government’s taxation revenue becomes insufficient to fulfill a country’s expenses. Therefore, countries borrow from other countries or international funding organizations like the IMF.
However, repeated borrowing can lead the country into a debt trap where it cannot even pay off the interest on the loan amount. This situation often occurs when governments become greedy and start considering public debt as easy money, often leading to the extravaganza. Governments might start resorting to increasing taxes to repay the debt, further deteriorating the economic situation. External debts can also pose challenges to political freedom causing further instability in a country.
Public or national debt doesn’t directly affect businesses. But some government strategies to overcome debt crises can have an indefinite effect on many companies. For instance, an increment in taxes would mean increased business costs. Governments could also increase restrictions on imports and exports. It could affect businesses specializing in exported goods or importing critical raw materials required for production. The best solution here is always to remain prepared. Perhaps always allocate some extra cost for sudden changes in policies.
4. Increasing inflation
Countries worldwide suffer from inflation, and while some can tackle it successfully, some suffer terrible consequences. Sudan, Lebanon, and Argentina are the top three countries with the highest inflation rates of 163.26%, 84.86%, and 42.02%.
Inflation can lead to unsustainable growth, damaging economic cycles. It increases un-competitiveness and discourages investments as well as long-term economic growth. Moreover, inflation can increase menu costs, lower the real value of savings, decrease the value of government bonds, and cause a decline in real incomes.
However, inflation doesn’t necessarily have to be harmful. If controlled and under the target rate, inflation can reduce the actual value of debt and allow prices and wages to adjust. Businesses must get spending visibility to improve performance and function effectively amidst inflations. It can considerably help in managing expenses. Companies must also differentiate between strategic and non-strategic spending, reduce consumption, and eliminate work as much as possible.
Wrapping up
Economic trends are essential because they show how a country is performing financially. Regularly accessing these trends helps understand the areas of concern and factors that drive an economy.
It is crucial for all businesses to follow all these economic trends because they will aid in identifying potential dangers and opportunities. They will also allow companies to adjust and move forward successfully. And lastly, staying abreast of market trends helps gain a competitive edge and ensures businesses reach their true potential.
Photo credit: The feature image has been done by Artem Podrez.
