What economic phase comes just before a recession?

The economic phase that comes just before a recession is the peak. During the peak phase, the economy is operating at or near its highest capacity; indicators such as employment, production, and sales are usually at their highest levels. However, this phase is characterized by the economy being overheated, which can lead to inflationary pressures. As demand exceeds supply, potential problems develop, and when economic activity begins to slow down from this peak, it transitions into a recession.

Understanding this concept is crucial in macroeconomics, as it highlights the cyclical nature of economies, where periods of growth (expansion) are followed by peaks, after which economic downturns (recessions) can occur. In contrast, recovery and trough represent phases following a recession, indicating the economy is beginning to grow again or has hit its lowest point, respectively.