2nd Internal Exam – AP Marketing Management

Macro-Economics – Re-examination
Date: 17/12/2021
Characters (including spaces): 10 054
Contents
Introduction .................................................................................................................................................. 1

5 Relevant Macro-Economic indicators ...................................................................................................... 1

Development of the macro-economic indicators ....................................................................................... 3

Monetary and Fiscal policies – Royal Unibrew........................................................................................... 5

Bibliography .................................................................................................................................................. 6
Introduction
This document will asses the questions regarding macroeconomics. On this document you will find
an analysis of five relevant macroeconomic factors for Germany, Russia and Romania. Moreover you
will find the development of the macroeconomic factors and how they affect each other. The source
for gathering the key indicators data come from mainly Trading Economics (Trading Economics, n.d.)

Furthermore, I will explain the relationship between the exchange of rate of the case’s countries and
Denmark’s currency, Danish Kroner (DKK).

All this analysis will follow with suggestions for Royal Unibrew to take into consideration when
investing on these countries (opportunities and threats).

5 Relevant Macro-Economic indicators

From third semester lectures we know that there are different components within a country’s
economy that should be looked at. The importance of these indicators relies on its influence on the
economy, since they play an important role.

The five indicators that I found relevant based on lectures theory for Royal Unibrew’s case are;
Inflation rate, Unemployment rate, Balance of Payments, GDP rate and Business Confidence.

We could highlight the GDP rate as one of the most relevant. GDP tell us (in general terms) how big a
country is in economic terms. GDP gathers all the country’s products and services value typically
within a year and its rate will tell us to what extent the country is growing.

Knowing the definition of GDP we could therefore compare the GDP rate of the three countries and
asses which one could be more attractive for a company like Royal Unibrew to develop its business.

The three countries had a negative GDP rate at the end of 2020; Germany; -4.57%, Russia, -2.9%
and Romania -3.8% (Trading Economics, n.d.). This means that the countries “grew negatively” in
2020 in respect to the previous year. The reason is due to the Covid 19 pandemic which has
affected negatively the demand worldwide (Mckinsey, n.d.).

If the GDP rate keeps on a negative path it means that the overall country’s GDP is decreasing, and
we know from lectures that GDP = Consumption + Investment + Government Spending + (Exports –
Imports). We know as well that lower GDP will result in a less attractive country for investors from
abroad (Investopedia , n.d.). Therefore, Royal Unibrew should take this fact into consideration.

The Balance of Payments is another macro-economic factor that belongs to the GDP equation
(Exports – Imports) The Balance of Payments relates to the country’s Exports minus Imports. A
country that has a surplus (imports more than exports) will influence positively on the country’s GDP.

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Which at the same time will influence international investors like the company’s case Unibrew to
make business. We know that a company to run its business needs employees (lows the
unemployment) pays salaries, which will ultimately boost consumption and demand which will bring
positive feedback to the country’s GDP.

Looking at Trading Economics we know that both Germany and Russia has a surplus, which means
that both these countries bring more foreign money to the nation. On the other hand, Romania has a
deficit, this is a Fact that Royal Unibrew should consider since a shortage on the Balance of
Payments will eventually lower the GDP; which is not a good indicator for investors from abroad
(Investopedia, n.d.)

The unemployment rate is another well known indicator when looking at a economy’s attractiveness
and how the country performs. Unemployment rate even tough is not explicit on the GDP’s equation,
will of course influence the overall outcome. A country with low unemployment will tend to consume
more and we know that Consumption is within the GDP’s equation. Also it is worth mentioning that a
low unemployment will lead to more money in place within the country; this fact could lead to a rise
on prices, known as inflation.

Trading Economics shows that Germany has the lowest unemployment rate in 2020; 3.81%,
whereas Romania and Russia scores 5.5% and 5% respectively. We know from Investopedia that a
rate within three to five percentage can be categorized as stable rate. Therefore, we can conclude
that these three countries have a relatively good unemployment rate.

As mentioned before, Inflation implies a continuous rise in prices on a country over a specific period
of time, usually a year (Investopedia , n.d.). This article from Investopedia points that countries tend
to target a 2% inflation rate. We know from lectures that Inflation can help a country’s growth by
increasing demand and consumption and therefore will ultimately increase the country’s GDP.
Nevertheless we are aware of the bad side of a continuous obove 2% inflation rate like it happens
nowadays in Venezuela 438% in 2017 which is a hyperinflation and can lead to the economies
bankrupt.

Germany had a inflation rate of 0.5% which is close to deflation which can have a negative impact as
it lowers consumption, Romania had a 2.6% which stays on what is known as a preferable rate.
Lastly Russia had a 3.3% in 2020 which still remains within the good terms (Trading Economics,
n.d.).

Lastly the Business Confidence index will make us see how attractive these countries are to run
business which is typically measured based on extensive surveys related to business conditions,
company culture and business expectations through companies around the world (Tutor 2 u, n.d.).

Trading Economics ranks Russia in January 2021 with a -7.3 points, Romania scores a -6.1 points
and Germany with a surprising 90 points in January 2021 (Trading Economics, n.d.). These scores
will influence Royal Unibrew decision on the country’s choice. It is clear that Germany is the country
to go for based on the Business Confidence Index.

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Development of the macro-economic indicators

The data reflected on the table above plus the definitions from the previous section, clearly shows
Germany as a more attractive country/market for Unibrew to invest; Stable unemployment rate,
great score of Business Index, steady surplus on the Balance of Payments.

From lectures we know that when it comes to the description of the development of the macro
economic factors, we cannot leave aside the rate of exchange between currencies.

The rate of exchange relates to the fluctuation behavior between two currencies that would
determine how stable or not the two currencies are. Ultimately, the exchange of a country compared
to other more powerful currency will determine the stability of prices as well as the attractiveness for
international companies to invest like Royal Unibrew (Investopedia , n.d.).

On the website Xe.com you can find how the currencies of Germany, Romania and Russia fluctuates
in comparison with Danish Crown (DKK) (XE, n.d.). On the next page you can find a screenshot of the
graphs

By looking at the graphs we can make the conclusion that the most stable currency through the
years is the eur – dkk. Despite of the fluctuations with the Euro, Denmark’s government have been
able to adjust its monetary policies to meet the Eur (Investopedia, n.d.). The author of the article
highlights that this fact is due to Denmark’s fixed rate with Eur Apparently the Danish currency is
fixed to euro at a exchange rate of 7,46 +- a 25% flexibility. The fixed rate pursues to make Danish
prices stable according to the Euro, therefore it will benefit Royal Unibrew as this fact gives an
assurance to the company that Euro and DKK go along.

We can see that the other curriencies have a fluctuation tendency making the exchange of rate
unstable like Russia’s currency (RUB).

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Monetary and Fiscal policies – Royal Unibrew
We know from lectures how the country’s Central Bank can influence the aggregated demand (and
therefore the GDP) through monetary policies. Monetary policies are either contractionary or
expansionary. The expansionary seeks to boost consumption by for instance, lowering the interest
rate; the interest rate is the cost of a entity to borrow money from a lender; in this case the Central
Bank is the lender and the commercial banks the borrowers.

Therefore, if the country’s Central Bank decides to lower the interest rate to commercial banks these
will tend to borrow more so it will ultimately put more money in circulation. On the other hand, a
Central Bank can rise the interest rate in case of for instance, inflation so there is less money in
circulation.

From Trading Economics we see that Romania had the lowest interest rate among the three
countries; 2.6% in 2020 and has increased since 2018 (0.5%). We could argue that Romanian’s
Central Bank is establishing a contractionary monetary policy. Similar happens with Russia; 5.8% in
2020 and -1.02% in 2018. For Germany there is no data.

The Government of a country plays as well a important role on the economy’s influence; GDP =
Consumption + Investment + Government Spending + (Exports – Imports). The Government is
capable to conduct expansionary and contractionary fiscal policies. For instance a country’s
government can rise taxes to later spend it on public services like roads, hospitals, schools that
would eventually create more employment, therefore more money in circulation an overall growth
(Investopedia , n.d.).

However, if a country’s Government looks for increasing demand, could apply a expansionary fiscal
policy which would imply a reduction on taxes, therefore its population will have more money
available to spend.

From Trading Economics we can see that Russian, Germany and Romanian’s Government budget
had a relatively high deficit in 2020 (-4, -4 and -9 points respectively). The Covid 19 pandemic had its
effects on demand so probably the Governments looked for boosting the consumption. Both Russia
and Germany kept contractionary policies the previous years.

Although is worth mentioning the development as Romania experienced a deficit during the previous
years,. Therefore, this could indicate to Royal Unibrew that taxes are lower on these countries which
could be an indicator to run its business.

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Bibliography
Investopedia. (n.d.). Retrieved from investopedia.com
Investopedia. (n.d.). Retrieved from
https://www.investopedia.com/terms/d/dkk.asp#:~:text=The%20Danish%20krone%20(DKK)%2
0is,2.25%25%20band%20of%20that%20level.
Investopedia . (n.d.). Retrieved from https://www.investopedia.com/terms/g/gdp.asp
Mckinsey. (n.d.). Retrieved from https://www.mckinsey.com/industries/consumer-packaged-goods/our-
insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19
Passport Database. (n.d.).
Trading Economics. (n.d.). Retrieved from tradingeconomics.com
Tutor 2 u. (n.d.). Business Confidence. Retrieved from
https://www.tutor2u.net/economics/reference/business-confidence
XE. (n.d.). Retrieved from www.xe.com