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HomemibusinessBusiness Cycles and Recessions

Business Cycles and Recessions

Phil Ruthven is one of Australia’s best-known strategic thinkers. He says he: “will never accept an excuse. If you get it wrong, you get it bloody wrong.” As he gets it right most of the time we asked Ruthven to share his insights and perspectives on the ebb and flow of business cycles and recessions.

For reasons not fully understood, if at all, the U.S. and Australian economies have long business cycles of 8 ½ years on average, and we are recession-prone only at the end of such cycles.

Long business cycles have emerged in developed economies since the end of the Industrial Age in the early to mid-Sixties; and those in the USA and Australia coincide in terms of timing and length as the figures in the graphs reveal.

Australia’s economy had shorter cycles in the Industrial Age due to weather and its impact on the fortunes of agriculture and therefore the entire economy. Such cycles had an average length of 3.7 years over the century to 1964.

But, why now 8.5 years on average? We don’t know, but their regularity makes them hard to ignore.

Recessions seem only possible at the end of each cycle but can be prevented. The cause of recessions is a collapse in investment (capital expenditure) which does go severely negative every 8.5 years, but so far never consumption expenditure (mainly households) as the two exhibits in the graphs prove.

So, to avoid recessions when the time comes, governments must support investment not consumption.

Phil Ruthven founder IBIS in 1971 and remains the sole owner of IBISWorld in Melbourne, the U.S., China and Indonesia. IBISWorld forecasts the future of 500 industries as well as social and economic trends such as the average length of marriages and interest rate movements. For further information go to: www.ibisworld.com.au