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A political, economic, social and technological (PEST) analysis considers all those aspects in terms of business and economics. When specifically discussing the economic aspects of such an analysis, one typically looks at the economy in the country where business is being conducted and future prospects for that country's economy. This would involve analysis of the gross domestic product (GDP) growth rate and the possibility of an economic recession in the next few years. A PEST analysis also would consider interest rates, taxes and duties in the particular country and their likely future movements. The inflation rate and its effect on the competitiveness of the country’s prices also would need to be examined. Such an analysis would relate these economic developments to prospects for sales of the enterprise's products and services in the market, taking into account the price elasticity of demand for those products.
PEST analysis economic factors would need to include the economic policy currently being pursued in the country in question and its likely effects on demand for the company’s products. The study would look at whether the government is taking measures to stimulate demand and, if so, whether these measures might lead to inflationary pressure in the country. The effect of the international economic climate on the country’s economy also would need to be considered. For example, in the event of a world economic slowdown, the effects on a particular industry in that specific market would need to be examined.
An economic analysis must look at the structure of the industry in the country including the number and size of potential competitors in the market. PEST analysis economic factors should include a study of consumer trends in the country. The company’s marketing strategy may need to be adapted to the type of advertising being pursued by competitors and the tastes, fashions and customs in the country. If there is one particularly large player in the industry in the country, then the company may need to adopt a proactive marketing strategy to carve out a reasonable market share. The types of sales outlets used by competitors also could have a bearing on 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 PEST analysis economic factors. This could include any negotiations being carried on with regard to tariff reduction 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 pricing should be considered. Direct taxes also are important, and the company must consider the possibility of double taxation and the existence of unilateral relief or double tax treaties to eliminate this possibility. PEST analysis economic factors also could include consideration of investment protection treaties that might protect the company’s investments in the country.
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