Economic risk refers to the potential for financial loss or instability that arises from changes in the broader economic environment, affecting businesses, investments, or entire economies.

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This risk can stem from factors such as inflation, interest rate changes, unemployment rates, exchange rate fluctuations, shifts in consumer behavior, political instability, policy changes, and natural disasters.

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Economic risk is often beyond the control of individual businesses and can result from local, national, or global economic events that impact profitability, cash flow, and long-term viability.

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For example, a company that exports goods internationally may face economic risk if a recession in a foreign market reduces demand for its products or if exchange rates shift unfavorably, making its goods more expensive abroad.

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