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  • Siti Zaidah Binti Abdullah

    Member
    January 30, 2022 at 10:29 pm

    View on the impact of macroeconomic variables on the business decision-making environment :

    As the economy reopens and recovers, we can see what is happening now. Demand for commodities has risen, and if it continues to outstrip supply, prices will rise. For instance, the fast-food chain is facing shortages, like McDonald’s Malaysia has been forced to control fries due to supply chain problems. Large portions of French fries , as well as one type of large meal set, have been taken off menus at outlets in the Southeast Asian country until further notice.

    As a result of our suppliers’ operations being heavily and unexpectedly disrupted, this has consequently impacted their operations resulting in a number of their main menu items currently being out of stock. The shortage was due to global supply chain disruptions caused by the Covid-19 pandemic.

    Because of factors such as a scarcity of personnel and shipping containers, the cost of doing business rises as a result of Covid-19.

    Gross domestic product (GDP), unemployment rate, and inflation rate are the three economic indicators that governments, corporations, and consumers regularly follow.

    The gross domestic product (GDP) is a unit of economic production that is used to measure a country’s economic activity. Countries with lesser GDPs generate less goods and services and often have a lower standard of living. When the companies lessen their hiring activities, therefore the unemployment rate will increase. When unemployment rate increase, it will diminishing the purchasing power. Hence, this can lead to a shortage of goods sold in the market. Therefore, there will be drop in revenue and reduce GDP.

    The unemployment rate is calculated as a proportion of the working population. It’s a trailing indicator that rises or falls in response to changing economic conditions rather than anticipating them. When the economy is bad and jobs are few, for example, one may expect higher unemployment. During high unemployment economy situation, people take job below their ability level, resulting in a loss of human capital. People become a liability to the economy because cannot be utilised as a resource. Therefore, this will lead to fall in standard of living, due to lower output. The output will decline , as factor of production (labor) is not fully- utilized. On the other hand, when the economy is growing at a good pace and jobs are plentiful, one may expect unemployment to fall.

    The rate at which a currency’s value depreciates, raising total prices for goods and services, is known as inflation. The rate of inflation is critical for a business because it influences the price of raw materials and, ultimately, the profit margin on goods and services. The world is presently in cost-push inflation as a result of the pandemic. As a result, central banks throughout the world are keeping a close eye on the situation and may use monetary policy to help countries with excessive inflation.

    Are macroeconomic variables a good indicator of business performance?

    Because management will change the business strategy based on the analysis of macroeconomic factors, each macroeconomic variable is an important indication for enterprises.

    The data gathered can be used to predict total business confidence. GDP drops and the unemployment rate rises when the economy isn’t functioning well (e.g., recession). As a result, businesses might expect decreasing demand for their products, lowering their performance.
    As a result, businesses can use macroeconomic data to forecast their performance, but it will not be a direct indicator of their performance.

    In conclusion, macroeconomic variables are not all indicators of company performance. The level and degree of association may differ, and it is also influenced by other factors such as company size, industry, and product type.

    Reference:

    https://www.brookings.edu/research/11-facts-on-the-economic-recovery-from-the-covid-19-pandemic/

    https://www.dbs.com/newsroom/Macroeconomic_insights_on_economic_recovery_after_Covid19_pandemic

    https://www.channelnewsasia.com/asia/mcdonalds-malaysia-french-fries-supply-crunch-2465516