You will be able to describe each stage of the business cycle and what tends to happen to jobs, rates and prices in it.
Kumar is 38 and works as a process engineer at a semiconductor plant in Woodlands. In good years the plant runs overtime and his bonus covers the family's December holiday. Twice in his career he has watched orders dry up, overtime vanish and colleagues on contract quietly not get renewed. Each time, the slowdown felt sudden. Each time, looking back, the signs had been building for months.
What Kumar lived through is the business cycle. This module is about recognising where in that cycle the economy is, and deciding in advance what you will do in each part of it. This lesson sets out the four stages and what tends to happen to jobs, rates and prices in each.
Economies grow over the long run, but not in a straight line. Output, hiring and spending tend to rise together for a stretch, then slow or fall together, then pick up again. The business cycle is the name for that repeated pattern of expansion and contraction around the long-term trend.
The pattern is uneven. Expansions can last many years. Contractions are usually shorter but sharper. No two cycles look the same, and the stages are much easier to label afterwards than while you are inside them.
The first stage is expansion. Firms sell more, so they hire, invest and order more from their suppliers. Unemployment falls and job vacancies rise. Wages pick up as employers compete for staff. Spending grows because more people have jobs and feel secure. Interest rates often drift up as demand for borrowing rises and central banks lean against inflation. For Kumar, this is the overtime and the decent bonus.
The second is the peak. Growth is still positive but slowing. Firms struggle to find workers, costs rise, and inflation is often at its highest around here. Central banks may have tightened policy. Things feel good, which is exactly why few people see the turn coming.
Then comes contraction. Demand falls, so firms cut orders, freeze hiring and, if it lasts, cut jobs. Unemployment rises. Inflation usually eases because people spend less. Central banks that set interest rates tend to cut them, and in Singapore, as module 2 explained, rates tend to follow. A long or deep contraction is what people call a recession.
The fourth stage is recovery. Output stops falling and starts to rise. Firms are cautious, so hiring lags behind, and unemployment can keep rising for a while even after growth has returned. Confidence comes back slowly. Recovery turns into the next expansion, and the cycle starts again.
You will often read that two quarters in a row of falling GDP make a technical recession. It is a common rule of thumb, used in Singapore news as elsewhere, and it is easy to check. It is not an official definition, though, and it can mislead in both directions. An economy can shrink for two quarters by a small amount while jobs hold up well. It can also suffer a sharp fall in one quarter that hurts more than a mild two-quarter dip.
For a household, the label matters less than the effects. A downturn that cuts hiring in your industry is a recession for you, whatever the GDP figures say.
Singapore trades far more than it produces for its own use. Factories here make chips, chemicals and machinery for buyers abroad. Ports, airlines and banks serve the region. That makes the economy very sensitive to what is happening in its main markets.
When demand falls in the US, China or Europe, orders to Singapore firms fall soon after. Kumar's plant saw it in its order book before the official figures showed anything. The global financial crisis of 2008 and 2009 and the pandemic in 2020 both reached Singapore quickly, through trade, travel and finance. The reverse is also true: Singapore often recovers early when global demand returns.
Many forecasters spend their careers trying to predict when the next recession will start, and turning points remain very hard to call. The data arrives late and gets revised. Signals that warned of past downturns sometimes fire without one following. Some recessions start because of a shock no one saw coming.
So the useful approach for your own money is the one Kumar settled on after his second downturn. Do not build your plans on a forecast. Build them so they work whether the next downturn comes this year or in five years: a cash buffer sized for your job risk, debts you could carry on a smaller income, and decisions you have written down in advance. Modules 4 and 5 build each of those.
Before the next lesson gives you the indicators to read, form your own view. Think about what you have seen in your industry, your company and the news over the past few months, and decide which of the four stages it sounds like.
Write down which stage of the cycle you think Singapore is in now and one piece of evidence for your view.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).