![Economy Fluctuations: Decoding the Highs and Lows [Stages and Key Features]](/en/content/images/size/w1280/format/webp/20250916100601_business-cycle-phases-characteristics.jpeg)
Economy Rollercoaster: Exploring the Highs and Lows of Business Movements [Stages and Traits]
The economy, like the seasons, follows a cycle of expansion and contraction. Understanding these cycles can help policymakers and businesses navigate the ups and downs of the economic landscape. In this article, we will explore five major economic cycles and their key features.
The shortest cycle, the Kitchin cycle, lasts about 40 months or 3-5 years. During the trough phase, businesses may replace permanent workers with temporary ones, and central banks may keep interest rates low to encourage borrowing for investment. As the economy starts to recover, the focus shifts towards fostering recovery and preventing a relapse into recession.
The Kitchin cycle is followed by the Juglar cycle, which lasts about 8-11 years. During this cycle, the economy experiences periods of expansion and contraction, with real GDP growth reaching its highest negative percentage during the trough phase. Unemployment rates remain high, and the goal of policymakers is to stimulate economic activity and job creation to avoid a crisis.
The Juglar cycle is part of the Kondratieff cycle, which lasts an average of 50 to 60 years and has two feature phases. This long cycle is marked by periods of economic boom and stagnation. During the boom phase, central banks may consider gradually raising interest rates to discourage excessive borrowing and investment activity, while during the stagnation phase, they may lower rates to stimulate growth.
The Kondratieff cycle is preceded by the Kuznets cycle, which lasts about 15 to 20 years. This cycle is characterised by periods of high economic growth, followed by a slowdown, and then a recovery. Classical economists argue that high unemployment rates push wages down, leading to improvements in profitability and a subsequent decrease in the unemployment rate.
Economic theories offer different perspectives on how the economy behaves during these cycles. Classical Real Business Cycle theory emphasises the role of supply-side factors and views business cycles as natural responses to real economic changes. On the other hand, Keynesian economics focuses on aggregate demand and argues that fluctuations in spending by households, businesses, and governments can cause recessions. Keynesian economists advocate for loose economic policies, such as increasing spending, cutting taxes, or lowering interest rates, to stimulate economic activity during a contractionary phase.
During the peak phase, policy focuses on ensuring a soft landing and preventing a sharp downturn. Central banks may raise interest rates more aggressively to curb inflation and cool down the economy before it overheats. During economic expansion, the primary focus of policymakers is to maintain stable growth and prevent the economy from bubbling.
However, economic cycles can sometimes lead to stagflation, a situation of high inflation, stagnant growth, and high unemployment, creating a policy conundrum. In such cases, policymakers must carefully balance their actions to stimulate growth without fueling inflation.
In recent years, we have seen varying economic performances across different countries. For instance, Hungary exhibited one of the highest GDP growth fluctuations, with a peak of +17.9% in Q2 2021 and a low of -12.7% in Q2 2020. Meanwhile, Germany showed a GDP decline of -0.3% in Q2 2025, indicating weaker growth during the same period. The US and China grew moderately by +0.7% and +1.1% respectively in Q2 2025, and France showed modest growth of +0.3% in Q2 2025.
Understanding economic cycles is crucial for policymakers, businesses, and individuals alike. By recognising the signs of each phase, we can better prepare for and respond to the ups and downs of the economic landscape.
