Business cycle (economy)

The business cycle (Konjunktur) describes the cyclical fluctuations in economic activity – the sequence of upswing, boom, downswing and recession.

The 4 phases:

1. Upswing (expansion):

• GDP grows, companies invest, unemployment falls
• Rising wages, growing consumption

2. Boom (peak):

• The economy at its high point, full employment
• Danger: overheating, rising inflation, speculative bubbles

3. Downswing (recession):

• GDP shrinks (technically: 2 quarters in a row), investment falls
• Companies lay off staff, consumers hold back

4. Trough (depression):

• Low point of economic activity
• High unemployment, low investment
• Recovery begins when interest rates fall and the state takes countermeasures

The business cycle in Germany:

• Typical cycle: 7–10 years
• Since 1950: 8 recessions (on average every 9 years)
• Last recession: 2023 (−0.3% GDP)
• Most severe recession: 2009 (−5.7%, financial crisis)

Economic indicators:

• ifo Business Climate Index: the most important German sentiment barometer
• Unemployment rate: lagging indicator
• Incoming orders: leading indicator