ECONOMIC

UNCERTAINTY
Michael C. Suldan
College of Business Education and
Management
CONT…
• Economic uncertainty implies the future outlook for the
economy is unpredictable. When people talk of economic
uncertainty, they usually imply there is a high likelihood of
negative economic events. Economic uncertainty could involve.
• Predictions of a higher and more volatile inflation rate. (inflation
uncertainty)Concerns over economic downturn – lower
economic growth or full-blown recession (negative economic
growth)
• People fear the prospect of being made unemployed.
• Concerns over prospects for exchange rate – e.g. rapid
devaluation of the currency.
• Concerns over government borrowing – e.g. markets unwilling
to finance more debt, leading to default.
ECONOMIC UNCERTAINTY
• Economic uncertainty implies the future outlook for the
economy is unpredictable. When people talk of economic
uncertainty, they usually imply there is a high likelihood of
negative economic events.
INFLATION
Inflation is the rate of increase in prices over a given
period of time. Inflation is typically a broad measure, such
as the overall increase in prices or the increase in the cost
of living in a country.

Firms generally prefer inflation to be low and stable. If

inflation rises above 3 or 4%, firms may see a rise in costs
and uncertainty. Inflation can also cause firms problems of
rising costs, falling profitability, and a decline in
international competitiveness.
DEFLATION
• Deflation is when the general price levels in a country
are falling—as opposed to inflation when prices rise.
Deflation can be caused by an increase in productivity, a
decrease in overall demand, or a decrease in the volume
of credit in the economy.
• In deflation, companies are the first to suffer, as falling
prices squeeze profit margins. ... When faced with
deflationary pressures, companies meet a number of
difficulties: - Falling prices result in slower growth in
nominal sales. - The real value of debt contracted rises
in nominal terms.
FOREIGN EXCHANGE RATE
• In finance, an exchange rate (also known as a foreign-
exchange rate, forex rate, or rate) between two currencies
is the rate at which one currency will be exchanged
for another. It is also regarded as the value of one
country's currency in terms of another currency.

• Changes in the exchange rate tend to directly affect

domestic prices of imported goods and services. A
stronger peso lowers the peso prices of imported goods
as well as import-intensive services such as transport,
thereby lowering the rate of inflation.
REFERENCE
www.bsp.gov.ph
www.investopedia.com