Macroeconomic Headwinds
Macroeconomic headwinds affect the economy or an industry as a whole and consequently affect companies indirectly. Some of the common macroeconomic headwinds include:
High interest rates – They lead to increasing the cost of capital for the economy and individual companies. They result in lower borrowing and lesser economic activity.
Inflation – Inflation is intricately linked to interest rates. Controlled inflation is good for the economy, but increased inflation increases the interest rates and the cost of raw materials, leading to a decreased economic activity.
Foreign exchange rate – It leads to an increase or decrease in the value of the currency. A decreasing currency value is detrimental to economies that are net importers, such as the U.S., U.K., and France. For China and Germany, which are net exporters, a weakened currency is better, as exports bring in more domestic currency.
Poor economic growth – It is detrimental to all industries and companies. It is measured by the gross domestic product (GDP). GDP growth is relative, with emerging economies having a higher rate than the advanced economies.
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Microeconomic Headwinds
Microeconomic factors affect individual companies and may not affect every company in the industry or the economy. They include factors specific to each company. Detrimental factors to each company can be classified as a micro-economic headwind. Some of these factors include:
Decreased revenue – It affects the profitability and ultimately the growth of each company.
Increased raw material cost – It affects a specific company due to economies of scale, transportation costs, and other factors specific to a company. It results in reduced profitability and growth.
Increased competition – It leads to decreased revenue, profitability, and growth for a company.
Decreased demand – It also decreases the revenue, profitability, and growth of the company.
Operational issues – They also reduces productivity and growth
Management change – It can affect decision-making and decreases growth.
Legal issues – They can threaten the operations or profits of a company