Methodology

Economic cycles

Contraction

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. 

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.  

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. 

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). 

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