In a business cycle, what happens immediately after the peak phase?

After the peak phase of a business cycle, the economy begins to contract. The peak represents the highest point of economic activity before a downturn occurs, characterized by maximum output, low unemployment, and high consumer confidence. Following this peak, various factors typically lead to a decrease in economic activity, which is referred to as contraction.

During this phase, businesses may start to reduce production due to decreased demand for goods and services. As a result, spending from both consumers and businesses generally declines, leading to a rise in unemployment and reduced investment. This contraction phase can ultimately lead to a recession if it continues for an extended period, characterized by a significant decline in economic activity across various sectors. Understanding this sequence is crucial for comprehending economic trends and making informed fiscal or personal decisions.