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| 4 minutes read

From depression to recovery – let’s come full (business) circle!

And in the end, the business cycle, which explains the natural rise and fall of economic growth over time, is also, by its very name, a cycle that repeats itself both positively and negatively and has neither a beginning nor an end.

So, let's come full circle and figure out where we are right now?

The business cycle consists of four phases: the upswing (expansion), the peak, the downswing (recession) and the trough (depression) indicates the economic situation of a country. There are two turning points in a (business) cycle, one representing the peak and the other the trough of an economy. Although no two cycles are alike, the sequence of events is always the same.

So how can we identify where we are now? Are there any indicators that can be used to distinguish between the individual phases?

The following table contains the various signs that help identify the different phases. However, these are not conclusive, neither is the assignment to the respective phase mandatory, since the transition is fluid, as is inherent in a cycle.




Demand for goods is growing

Production capacities are increasingly utilized

Lower unemployment

Goods prices rise slightly

Overall positive mood in the economy


Very high demand for goods

Production capacities of companies fully utilized

Almost full employment

Unemployment falling rapidly

Wages, interest rates and goods prices on the rise


Demand for goods decreases

Production decreases

Less use of production capacities

Fewer investments are made

Unemployment increases

Wages, interest rates and goods prices fall


Demand for goods very low

Production capacities not utilized

Employees continue to be laid off

Companies make no or hardly any investments

Prices of goods fall

 But where are we now?

This is probably one of the most significant questions that investors are currently asking themselves in the post-Covid era, when the negative economic effects of Covid are becoming more prominent. In order to determine our current position, we must not only consider the presence of the above characteristics, but also take a look at how the cycle played outin the past.

From analysing previous cycles, it can be seen that a typical upswing usually lasts 3 to 5 years. If we consider the financial crisis of 2009 as the last trough and the subsequent years as years of upswing, the last high should have been reached by 2015 at the latest.

Certainly, only prolonged expansion alone is not a sign that a recession is imminent, but it can be taken together with other aspects as an indication of an impending recession.

In this context, however, it should also be noted that the last few cycles in particular show that the respective phases have become longer. And there are multiple explanations for this: a key factor is that we started this cycle from a low level, given the scale of the financial crash of 2008/2009. In addition, central banks have provided extensive monetary stimulus through quantitative easing, which has boosted economic performance. Another proposition that has gained traction in recent decades is the possibility of a "great moderation" due to demographic changes in economies and monetary policy. The volatility of economic growth in the G-7 economies has declined since before the 1980s, which may have had a dampening effect on the severity of business cycles.

The fact that we are not in the midst of an upswing in Germany at the moment, and that the peak is probably clearly over, begs the question:

Are we in a recession or have we already hit the trough, so that we can hope for an upswing soon?

With pleasure, you would say yes, we have already reached the trough and the upswing is already at the door. Unfortunately, this is not quite correct: If we look at the above characteristics, the first points can be checked off under both "Recession" and "Through". But what about the point "falling prices"? Here, it is necessary to look at each individual case in order to be able to answer this point in the affirmative or in the negative. When you go to the supermarket, it's hard to assume that prices will fall; think of the German EDEKA boycott of Mars products, such as M&Ms, because of an excessive price increase. But what about the German real estate market? A differentiated answer is also necessary. In the case of new construction projects, prices are expected to continue to rise due to the immense increase in the cost of raw materials and building materials, which will probably also have a significant impact on rental prices. With regard to existing buildings, prices are expected to stagnate, as they are at a permanent high, especially in (German) metropolitan areas. Experts do not expect the "bubble" to burst.

And finally, probably the most important reason for the tense (real estate) economic situation: the Ukraine war and the tension between the USA and China. It is precisely the Ukraine war - i.e. a war on Europe's doorstep - that is triggering acute fears for the future, especially among Europeans. Will the war spread further into Europe? These fears are probably the main reason why major investors, especially in the European real estate market are hesitant to go-ahead with significant deals. For 2022 as a whole, the transaction volume was around EUR 12.2 billion - the lowest figure for ten years. Compared with the previous year, the drop in sales amounts to 76 percent. However, it should be noted here that the 2021 result had been significantly shaped by very large transactions such as the takeover of Deutsche Wohnen by Vonovia. Last week, however, Vonovia canceled all new construction projects for 2023, which means that its 2021 figures would probably also have to be adjusted downward (by around EUR 0.35 billion).

The beginning of the end?

Rarely is the beginning of the end something positive. Here it is. Because the end of the recession and thus the trough is in sight. In mid-2023, experts again expect an increase in the number of real estate transactions, especially in the area of new residential construction in Germany. Because crises, inflation or other fears will not change the acute demand for housing in Germany, especially in large cities.

Where are we now? The big question posed to investors today is, where are we in the current business cycle and when will the next turn in the cycle come?


real estate, 2023, business circle, post-covid-era, invest