🎈 Here are the most common economic recovery shapes and what they mean. While economic growth can be measured by any number of metrics—like the stock market or employment rates for example—we’ll focus on GDP.
📍 A V-shaped recovery means that the economy bounces back quickly to its baseline before the crisis, with no hiccups along the way. Growth continues at the same rate as before. This is one of the most optimistic recovery patterns because it implies that the downturn did not cause any lasting damage to the economy. Under this scenario, the economic damage lasts for a longer period of time before eventually reaching the baseline level of growth again. The economy bounces back, but the damage at the bottom lingers for a while.
📍 In a W-shaped recession, also called a double dip, the economy moves beyond a recession into a period of recovery before falling back down again into another recession. The initial recovery is sometimes known as a bear market rally.
One example: After the oil and inflation crises in 1979, the U.S. fell into two back-to-back recessions in 1980 and 1981.
📍 An L-shaped recovery is the most pessimistic scenario. In this shape, the economy recovers to a certain degree from a steep drop, but growth never reaches pre-crisis levels for years, if at all. A period of economic stagnation follows.
📍 A recovery scenario resembling the Nike “swoosh” logo is characterized by a steep drop and a gradual recovery, meaning that it takes much longer to return to pre-crisis growth levels than it took to fall into recession.
A variant of this is a square root-shaped recession where growth recovers but then plateaus before reaching pre-crisis levels. Lowenstein says this is his base case scenario.
feel Free to comment below Your Ideas to make things more better.
One important one is missing, and unfortunately this one occurs the most often ... K-shaped recovery, where the upper leg is for the 1%, the downward leg determines the purchasing power of the 99% ...
Egregius
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@Nico.Muselle, I was about to add the same comment. It, unfortunately, looks like a very likely scenario.
Prosperitus
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It looks like we are in a swoosh pattern resembling the Nike logo. If this is the case then the narrative is to have a "steep drop" at some point is the future and then a "gradual recovery." Is that what the "swoosh pattern" indicates? Thank you for helping me understand this scenario.
Hedge_Of_The_World
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Interesting... Debt, more debt, and more debt, is not a recovery. Asset prices are completely disconnected from the real economy. For the moment, the laws of physics are irrelevant. When you jump, you don't fall, you just float somewhere in orbit. There won't be a recovery anytime soon, because all this newly created capital is doing, is getting in line to service debt. Perhaps a post on the different chart patterns of a prolonged recession, or long-term depression would be more fitting to today's market?
UnknownUnicorn5507594
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L-Shape Recovery by that I mean not your L-Shape but the whole Economy crashing due to increasing Socialism 5-20 Yrs
Egregius
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@Mahan_Mahmoudi, Increasing socialism, as in Swedish style socialism? More Dutch style socialism, where you keep socialist institutions intact but try to privatise more and more even though previous privatisations worked out badly?
Or are you referring to Venezuela-style socialism, which isn't socialism at all except in name?
Crypto_Burns
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Which one do you think would most likely to happen?