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Your guide through Economic Cycles

Updated: Feb 15, 2023


Your guide through Economic Cycles by ART Invest

Investors are now bracing for a recession amidst historical volatility, inflationary pressures, tight monetary & fiscal policy, and supply chain issues.


However, before investors start panicking about the prospects of a prolonged recession, it is important to understand that a recessionary economic environment is only part of the broader economic cycle, which has historically lasted for a decade on average.


To understand the impact of the upcoming recession, what comes next, and how different asset classes would perform, it is important to understand what economic cycles are and how they impact each asset class.


So let's get started!


Economic Definition of Cycles


Economic cycles are simply the regular movements of an economy from a period of expansion to a period of contraction and back again. Expansions are growth periods characterized by increased sales and production.


Contraction or recession is the opposite—a downturn characterized by decreased sales and production.


Factors that Determine an Economic Cycle


Historically, every economic cycle is different but has broadly followed the same patterns. While each cycle may have variations, the timing depends on factors such as the corporate profit cycle, the employment cycle, and the consumer confidence cycle, in addition to changes in the monetary and fiscal policy over the long term.


Sometimes, large events—such as natural disasters, the outbreak of wars, or shifts in fiscal or monetary policy—can cause economic trends to shift before typical economic indicators give a warning. However, patterns in economic indicators can help recognize the four stages of a cycle.