The period of expansion of the economy (the upswing phase)

The upswing phase has two parts, namely the recovery phase and the prosperity phase.

• Before the recovery phase begins, there is a high level of unemployment, low demand for consumer goods, low levels of production, little business confidence, few new businesses being established, and general pessimism about economic prospects.
• The recovery phase begins when the low level of economic activities is addressed by the government creating favourable conditions for business, the banking sector making loans available at low interest rates, improved technology becoming available and a greater demand from abroad for South African products. This causes more businesses to be started, more production machinery to be purchased and more workers to be employed. Demand for consumer goods then increases, production increases, profits of businesses increase and more houses are built. In general, there is therefore an increase in economic activities.
• The prosperity phase is when wages and profits are exceptionally high, employment is high and consumer credit is freely available, which keeps consumer demand high and causes production to expand further. The prosperity phase ends when inflation increases and interest rates increase, causing demand to decrease and there is no further increase in employment and salaries. At this point, the peak of the expansion has been reached.

The period of contraction of the economy (the downswing phase)

The period of contraction of the economy has two phases, namely the recession phase and the depression phase.

• In the recession phase, interest rates are high, which causes demand for credit and consumer goods to decrease and production levels to fall, causing unemployment to increase. Inflation is still high.
• In the depression phase, unemployment increases further, demand for goods and services decreases significantly, many businesses close, resulting in low levels of production, households have a lot of debt and the inflation rate and interest rate decline. There is general pessimism about the economy and a low point is reached, called the trough.