Four phases
The economic cycle is the sequence of growth spells and slow spells in overall activity: output, sales, hiring and investment. To keep it simple in this path, we split the movement into four phases: recovery, expansion, slowdown and contraction. These phases keep no fixed schedule, and each cycle looks different from the last.
Cyclical and defensive sectors
Some companies sell things people postpone when times get tight, such as building materials, property and cars. These are cyclical sectors: their sales rise a lot in expansions and fall a lot in contractions. Others sell things people need in any conditions, such as staple food and medicine. These are defensive sectors: their sales move less with the cycle.
A tendency, not a rule
Linking phases to sectors describes a general tendency, not something that happens every time. In Egypt especially, the exchange rate, interest rates and inflation can outweigh the cycle: a defensive company with imported inputs can be squeezed hard if the pound weakens, even with steady demand. And the stock market often runs ahead of the economy, so shares may move before economic data confirms the phase.
Compare the sectors
The sectors page shows each sector's performance, so you can see how cyclical and defensive sectors moved over different periods.
Check yourself
1. Which company's sales are usually hit harder in a contraction?
2. When do we usually know with confidence that the economy was in a given phase?
Summary
- We simplify the cycle into four phases, recovery, expansion, slowdown and contraction, with no fixed timing.
- Cyclical sectors react far more to the cycle than defensive ones.
- The link is a tendency; the dollar, rates and inflation can outweigh it.