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What Is a Global Business Cycle?

Geri Terzo
Geri Terzo

Economists tend to review activity in the economies of individual countries to recognize signs of change in a global business cycle. The influence that each country's economy has on a business cycle varies in part depending on the deposit that each nation makes to the overall global economic picture. Economies of developed nations might be considered together, while the influence of emerging markets could represent another market segment. Global economists often use indexes to identify business cycle trends. Sometimes, they recognize a change in the trend once that period has already passed.

By assigning different weights or percentages to influential countries in the world economy, economists can come up with a global perspective on the state of the broad markets. Countries may be separated by the state of development in the economy, ranging from the select few advanced nations, to developed nations, and finally to those with emerging markets. The emerging economies may sometimes represent the fastest-growing regions, but this largely because there is much development yet to be obtained.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

A global business cycle could be dramatic and may represent boom times when the markets have peaked, a trough when there is severe contraction, and different stages between both extremes. Although a typical global business cycle unfolds over a period of about a decade, give or take several years and susceptible to shorter terms, it's possible for a cycle to repeat itself. If the global economy enters a recession, eventual signs might indicate that the contraction is over and the markets are recovering. A double-dip recession, however, would suggest that the cycle is determined to repeat itself. Economists can label this condition in different ways, separating out each individual recession or determining that the initial global business cycle never truly ended.

Gross domestic product is a measure that economists use to determine the expansion that might be occurring in individual economies. Based on these rates, and once again placing different influence to countries based on the status of an economy, market participants are able to assign a rate of growth to the global economy. That rate should reveal the type of global business cycle that the world's economies have gone through over different periods of time. Economic expansion data is also used to create forecasts on forthcoming global business cycles. When historical data is revised, however, these projections may also be subject to change.

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