A PEST analysis examines political, economic, social, and technological factors in terms of economics and trade. Economic factors include GDP growth, interest rates, taxes, inflation, and industry structure. The analysis should also consider government policies, consumer trends, and international economic climate.
A political, economic, social and technological (PEST) analysis considers all those aspects in terms of economics and trade. When discussing the economic aspects of such an analysis specifically, one is typically looking at the economy in the country where business is conducted and the future outlook for that country’s economy. This would involve analyzing the growth rate of gross domestic product (GDP) and the possibility of an economic recession in the coming years. A PEST analysis would also consider interest rates, taxes and duties in the particular country and their likely future movements. The rate of inflation and its effect on the country’s price competitiveness should also be examined. Such an analysis would relate these economic developments to the sales prospects of the company’s products and services on the market, taking into account the elasticity of demand for these products.
The PEST analysis should include the current economic policy in the country in question and its likely effects on the demand for the company’s products. The study would verify whether the government is taking measures to stimulate demand and, if so, whether such measures could lead to inflationary pressures in the country. The effect of the international economic climate on the country’s economy should also be taken into consideration. For example, in the event of a global economic slowdown, the effects on a particular sector in that specific market should be examined.
An economic analysis must examine the structure of the industry in the country, including the number and size of potential competitors in the market. The PEST analysis of economic factors should include a study of consumer trends in the country. It may be necessary to adapt the company’s marketing strategy to the type of advertising pursued by competitors and to the tastes, fashions and habits of the country. If there is a particularly large player in the industry in the country, the company may need to adopt a proactive marketing strategy to carve out a reasonable market share. The types of outlets used by competitors could also affect the company’s sales strategy in the country.
Future government policy in the country in relation to import duties and taxes should be included in the economic factors of the PEST analysis. This could include any ongoing negotiations regarding tariff reductions or the creation of free trade zones in the region. Indirect taxes such as sales tax or value added tax (VAT) and their effect on prices should be considered. Direct taxes are also important and the company needs to consider the possibility of double taxation and the existence of unilateral relief or double taxation treaties to eliminate this possibility. The economic factors of the PEST analysis may also include consideration of investment protection treaties which may protect the company’s investments in the country.
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