Economic Context

Economic Context Concept

Economic context designates a group of contextual variables with influence in the performance and the activity and reflects the economical situation and determines the exchange of goods and services, money and information in the society.

Are examples of economic context variables the following:

• GNP (Gross National Product): The GNP analysis relevance and its evolution lie on its great influence about the entrepreneurial activity in general. In fact, while the GNP sustained growth creates incentives to higher investment and private consumption levels and, for that, to higher levels of business activity, the GNP decrease leads to the search reduction of goods and services and, consequently, the reduction of the business activity. Should be noted that the GNP evolution analysis in other countries also become important in the way that its effects spread rapidly to all others due to the intensification of economical globalization. A good example of the 1998 “Asian crisis” that with bigger or smaller intensity spread to all European countries causing a decrease of the external search directed to the Portuguese companies. Naturally that, if the organization develops activities at an international level, the GNP evolution analysis in the countries with which maintains commercial relations has a direct impact in its activity, assuming, thus, still bigger relevance.
• Inflation rate and interest rate: Like the GNP evolution, inflation rate and interest rate have huge influence in the entrepreneurial activity: while low inflation and interest rates provide bigger trust and reduce the economical agents’ costs, encouraging investment by the companies in productive capacity and the purchase of goods and services by the consumers, the high inflation and interest rates naturally have the opposite effect. In some cases, interest rate has a more direct effect like the cases of the construction sectors due to the fact that the majority of the purchases are made by credit.

Economic Context of any organization still includes variables like exchange rates, unemployment rates, commercial scale, energetic costs and savings tax of household. According to the type of activity developed by each organization, any one of these factors can have a bigger or lower impact in its long term development.