Economic cycles

Contraction

1

Contraction refers to the phase in the economic cycle where the economy as a whole starts to decline. It starts when GDP has declined for 2 or more quarters, resulting in an official recession.

2

The contraction phase is a symbol of financial hardship for many, with unemployment increasing as opportunities decline. It’s not always clear how long a contraction can last for, though it can last for years. 

3

Although GDP is the primary measure of contraction, what the public experiences is more visible. There is a lack of productivity, which results in a lack of jobs and less money being spent by consumers.

4

Commodities tend to perform well in the contraction phase as investors see gold, specifically, as a hedge for inflation. Defensive equities also perform well (food, retail, pharmaceuticals, and utilities).

Test your knowledge...

1. How much can you expect to earn from a cash investment?

Copyright © 2021 Methodology

That's wrong - try again!