By: musicwhiz I think by now, any normal man on the street will be all too aware of the effects of an economic slowdown coming to our shores, as well as feel the effects of heightened inflation. The newspaper has been blaring the news out almost every day in a non-stop stomach-churning litany of bad news, contributing to the ever-increasing gloomy sentiment prevailing in the stock markets. But an investor should ask the all-important question: How will these economic events impact on the companies I own ? I would like to address some of these issues here:- 1) Slowing Demand for Goods and Services - With any economic downturn or recession, people will tend to cut down on their spending and conserve cash for a rainy day. This will translate into slowing demand for goods and services across most sectors, but particularly for consumer goods such as electronic goods, cars and restaurant dining. Thus, during a downturn, such consumer-related companies typically feel the effects first-hand as consumers may spend less and eat more at home. Ironically, it is the spending effect which helps to grow GDP for a country (though it may not be good for an individual's wallet or personal finances, but that's another story !). There will be higher unemployment, more retrenchments and even pay cuts/freezes which will make people tighten their wallets further. All these contribute to the contractionary effect on the economy. 2) Higher Cost of Goods - Inflationary pressures and the global commodity boom has raised the cost of goods for many companies. Read more...