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U-shaped or V-shaped recovery? Here’s your guide to the geometry of recessions

Some scenarios for what our economic recovery might look like are scarier than others. We’ll help you digest the economic alphabet soup.

U-shaped or V-shaped recovery? Here’s your guide to the geometry of recessions
[Photo: Flickr user Sam valadi]

The coronavirus crisis stands to go down in history as an unwelcome sequel to the Great Depression, with its economic destruction ready to dwarf that of 2008’s Great Recession. But even the worst of times won’t last forever, and economists are now weighing in on how a recovery will look.

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You might’ve noticed a lot of letters being tossed out: U, V, W, etc. In a recent poll from Reuters, which surveyed 45 economists throughout Europe and the United States, nearly half responded that the U.S. recovery would likely be “U-shaped,” which was the largest percentage for any given shape. This represents a shift from prior weeks, when predictions for a “V-shaped” recovery were making the rounds.

If you’re wondering what these mean, let us spell it out:

V-shaped

A V-shaped recovery is marked by a steep, dramatic decline in the economy (the first half of the “V“), followed by an equally rapid upturn, mirroring the preceding drop in speed and intensity (the second half of the “V“). This is the best-case scenario, constituting a strong recovery. While analysts were hoping for the V shape to shape up, it’s looking less likely as virus-related lockdowns continue and our economy rests in the pits.

U-shaped

The current front-runner, a U-shaped recovery means that after our economy falls off a cliff, it’ll hang out at rock bottom for a while, potentially up to two years, and then eventually climb back to normal—as we saw with the Great Recession of 2008. With a U-shaped recovery, we can expect economic hardship to persist until at least late 2020 and likely into 2021, but we can take comfort in the fact that an upswing will come.

W-shaped

Also known as a “double-dip” recession, this is exactly what it looks like—a V-shaped recession and recovery, followed by another V-shaped recession and recovery. This might occur if, say, we relaxed coronavirus containment measures prematurely, saw an improvement in the economy, and then fell victim to another coronavirus outbreak. Given reports that some COVID-19 survivors have been retesting positive for the virus, and speculation that cold weather could increase the virus’s contagiousness, a W-shaped scenario is not far-fetched.

L-shaped

This is the worst-case scenario, in which the economy sinks and then stays on the ocean floor for a prolonged period of time—who knows how long, but it could be up to 10 years—and then either does or doesn’t return to its former state. In 1990, Japan experienced an L-shaped recession, which has since been dubbed its “lost decade.” We might end up here if we never find a way to control the coronavirus outbreak, but fortunately, most experts think this is unlikely.

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Note: None of these are official terms. And some financial analysts have drawn their own unusual shapes, such as:

Nike-swoosh-shaped

A riff on the U shape, the swoosh was described by Bloomberg as a situation in which spending slowly resumes, with economic limits eased much more gradually than they were imposed. This would mean “the level of economic output stays beneath the level of its pre-crisis trend well into 2021 and there’s a lack of animal spirits as people remain cautious of over-spending or taking long-distance trips, especially if they have to deal with debts,” Bloomberg explained.

Inverted-square-root-shaped

This term, coined by George Soros in 2009, refers to a recession in which “you hit bottom and you automatically rebound some, but then you don’t come out of it in a V-shape recovery or anything like that. You settle down—step down.” Let’s hope we don’t see this happen.

J-shaped

Described by TheStreet as “strictly for optimists,” this is when the economy rebounds far beyond pre-recession levels. Fingers crossed for a J shape—after all, any U shape can become a J shape over time!

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