The term economic environment refers to all the external economic factors that influence buying habits of consumers and businesses and therefore affect the performance of a company. These factors are often beyond a company’s control, and may be either large-scale (macro) or small-scale (micro).
Macro factors include:
- Interest rates
- Tax rates
- Currency exchange rate
- Saving rates
- Consumer confidence levels
Micro factors include:
- The size of the available market
- Demand for the company’s products or services
- Availability and quality of suppliers
- The reliability of the company’s distribution chain (i.e., how it gets products to customers)
While companies often can’t control their economic environment, they can evaluate economic conditions before choosing to enter a particular market or industry or pursue other strategies.