Phases of the Economic Life Cycle

Global Economy After a Recession

May 25, 2009 Sally Luxton

According to Harry S. Dent, Jr. in his book "The Next Great Bubble Boom" (2005), economic life cycles are as long as the human life containing four phases.

The four phases of the economic life cycle are referred to as Innovation, Growth, Shakeout and Maturity Boom. It is very much like the life cycle of a product in relation to its price at various stages of the product's life cycle. At a macroeconomic level, however, prices of products in general are the point of reference for this article.

Dent presents a strong level of reasoning to suggest that the global economy would suffer a major Shakeout during the periods 2009-2010. (Remember this book was written in 2005). This certainly appears to be the case. In order to put this in perspective, the four phases of the economic life cycle are further defined here.

Innovation Phase of the Economic Cycle

This is the phase of the economic cycle where new technologies and products emerge. One example of this is the invention of computers in 1946. The creation of microchips in 1971 and personal computers by 1976 followed by advanced software systems by 1981 added to the innovative technology. Inflation and economic activity tend to be more volatile during this phase and therefore recessions are often more severe.

Growth Phase of the Economic Cycle

As businesses and the general population embraced the use of computers and with the advancements in the internet in 1993, the economic growth phase of this new technology becomes evident. During this time, Companies have competed for market share and domination. The drive for an increase in productivity is evident from appreciating asset prices, falling interest rates and a booming global economy over the last two decades. It is worth noting that the years 1902-1929 are also representative of this massive phase of growth but the innovative product of that life cycle was the mass production of motor cars.

Shakeout Phase of the Economic Cycle

Since the repercussion of the global financial crisis (GFC) some of the heaviest duty brakes ever have been applied to the global economy economic output. The last time this magnitude of high profile business failures, job losses, deflation and declining activity was observed was the Great Depression of 1930-42.

Maturity Boom of the Economic Cycle

This is a phase the global economy at present can only strive to aspire to. Dent notes that the "happy days" of the 1950s and 1960s presented the longest period of prosperity for the widespread population due to lower prices and stable economic conditions. It is somewhat like a "settling period" where the new technologies from the innovative and growth phase are afforded by all people on a mainstream basis.

World economic authorities such as the Group of 20, International Monetary Fund and World Bank Group were created since the Great Depression. It is reasonable to expect that with such committed organisations, central banks and governments implementing unprecedented economic policy on a widespread co-operative global basis that a repeat of the Great Depression will not eventuate.

Two questions remain for readers:

1. How long until the global economy can be viewed as being in a maturity boom?

2.. How long will the global population be able to enjoy the period of maturity?

The copyright of the article Phases of the Economic Life Cycle in Investment is owned by Sally Luxton. Permission to republish Phases of the Economic Life Cycle in print or online must be granted by the author in writing.

Phases of the Economic Life Cycle

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