While economic performance is mostly unpredictable, we have witnessed some drastic changes occurring often leading to a boom, which is characterized by a period of rapid economic growth or a recession, characterized by a period of stagnated economic growth. Although most factors leading to economic changes are as a result of human actions or error, others are not. Stages of the business cycle include expansion, peak, recession, depression, trough, recovery, expansion, peak and recession whereby a complete business cycle entails a single boom and a single contraction in sequence.
Economic Expansion
This is the phase of a business cycle where the GDP grows for two or more consecutive quarters and moves from a trough to a peak. This period is characterized by consumer confidence in the economy, rise in employment and stable equity markets.
Although expansions have been known to go from 12 months to more than 10 years, they last an average of four to five years. The business cycles are often studied by policymakers, investors and economists. With the help of past economic patterns, potential investment opportunities and future trends can be identified.
Among clues for an economic expansion include unemployment claims, hours worked by employees in the manufacturing sector interest rates and capital expenditure.
Economic Recovery
This is the business cycle following a recession that is characterized by improving or sustained business activities including significant growth in the gross domestic product, a decrease in unemployment and an increase in income.
In an economic recovery, the economy adapts to the policies and rules rolled out by the central bank and the government including the recession triggers. It also involves re-employing of other productive resources in the economy that were tied up during the recession. This sets up for a new expansion.
Indicators of recovery include;
- Leading indicators such as the stock market
- Lagging indicators such as employment. In most economies, however, unemployment remains high as the economy begins to recover as employers may be unsure of the economic recovery timeframe.
Similarities between Economic expansion and Economic recovery
- Both refer to an improvement in the overall economic performance
Differences between Economic expansion and Economic recovery
Definition
Economic expansion refers to the phase of a business cycle where the GDP grows for two or more consecutive quarters and moves from a trough to a peak. On the other hand, economic recovery refers to the business cycle following a recession that is characterized by improving or sustained business activities.
Economic shift
In an economic expansion, the economy moves from a trough to a peak. On the other hand, in an economic recovery, the economy moves from a recession.
Measure
Measures of economic expansion include unemployment claims, hours worked by employees in the manufacturing sector interest rates and capital expenditure. On the other hand, the measure of an economic recovery includes leading indicators such as the stock market and lagging indicators such as employment.
Economic expansion vs. Economic recovery: Comparison Table
Summary of Economic expansion vs. Economic recovery
Economic expansion refers to the phase of a business cycle where the GDP grows for two or more consecutive quarters and moves from a trough to a peak. On the other hand, economic recovery refers to the business cycle following a recession that is characterized by improving or sustained business activities. Both refer to an improvement in overall economic performance.