How do expectations about the future affect business investments and consumer behavior?
Answer (2)
Expectations about the future play a major role in how businesses decide to invest and how consumers choose to spend or save. These expectations are based on what people believe will happen in the economy—whether it will grow, stay the same, or get worse.For businesses, future expectations affect whether they will expand or hold back. If companies are optimistic—meaning they expect strong demand, low interest rates, or good government support—they are more likely to invest in new buildings, equipment, or staff. For example, if a resort in Bohol expects tourist arrivals to increase, it might renovate or expand rooms. But if they expect another lockdown or typhoon season, they may cancel their plans.Similarly, consumers base their spending decisions on what they think will happen next. If people feel secure in their jobs and expect prices to remain stable, they may spend more on non-essentials like gadgets or travel. But if they fear job loss or rising prices, they often save instead. For instance, a family in Davao may delay buying a new refrigerator if they think prices will drop or if income becomes uncertain.In the Philippines, these behaviors are strongly influenced certain events.Election results (which affect policy expectations)Natural disasters (like typhoons)Global trends (like oil prices and remittances)During the pandemic, both businesses and consumers were fearful—leading to less investment and lower consumption. As confidence returned in 2022, spending and business activity slowly picked up.Economists call this “consumer and business confidence.” It’s hard to measure, but very powerful. Even if economic fundamentals are stable, if expectations are negative, spending and investment will slow down—leading to slower economic growth.In conclusion, expectations influence behavior. When people and businesses feel hopeful, they act. When they feel fear, they hold back. That’s why governments try to send clear and positive signals to encourage activity in the economy.
Expectations about the future significantly influence both business investments and consumer behavior.Businesses - If firms expect economic growth, they are more likely to invest in new projects, hire workers, and expand operations. Conversely, if they foresee a downturn, they may delay investments and cut costs.Consumers - When people expect higher future income or stable prices, they are more likely to spend and borrow. If they fear unemployment or inflation, they tend to save more and reduce spending.
