ECONOMIC RECOVERY – WHAT’S THE SHAPE OF YOU!

While Rajiv Bajaj said that the lockdown has “flattened the wrong curve,” economists were busy giving us their “shape” of the curve – the economic recovery curve.

Most of us have heard and learnt probably two shapes – ‘V’ and ‘U’. Then there was also the ‘W’ and now we hear there is also a ‘Z.” This sounds more and more like some alphabet soup!

And as India begins to unlock despite surge in Covid cases, which seems to have the shape of only an upward going arrow or termed – Nike ‘swoosh shape,’ what will be the shape of the economic recovery? See, the positive here – economic recovery is a given; its only the shape that we are debating.

These shapes basically represent the path of the economic recovery or GDP over a period of time.

Z – this is the best-case scenario. There is a downturn during the pandemic but the growth picks up and goes much over the pre-Covid levels. This happens because pent-up demand takes over – people buy more of everything as demands and wants were repressed during the lockdown and thus ends up creating a temporary boom. This boom helps economy recovery all that was lost during the lockdown and once the pent-up demands are satiated, the GDP goes back to pre-Covid times.

V – This is pretty easy to decipher and the second best case scenario – the GDP bounces back from the bottom, right to the level where it was before the pandemic, with no hiccups or stops in between. In this shape, there is no doubt, its like as though this crisis did not have any impact on the growth at all; its all back to normal and the pandemic was just a blip. Here the climb up is quick.

U – This is similar to V but the difference being that the lingering at the bottom is longer and the climb up is slow and gradual.

W – This is basically two ‘Vs’ which means there will be a recovery and then a recession and a second rebound. This is a double-dip recession where the economy falls back into recession again before getting back onto a more sustainable growth track. This could happen if there is a lockdown again following an unabated surge in cases, m√√ore importantly, fatalities.

L – this is probably the worst-case scenario as the recession prolongs. The shape indicates that there is a steep drop and the growth never comes back to the pre-crisis level for years, with a period of economic stagnation. Incidentally, this is the shape of recovery post the 2008-crash.

And then moving away from the alphabets, there is another symbol – the Nike logo, known as the ‘swoosh.’

Nike Swoosh – this one signifies first a big drop and then a very slow and painful recovery which could happen next year or even much later.

The timing of any one of these shapes coming up?

Well, the lockdown has been lifted and slowly people are trying to find a routine of pre-Covid times. But whether demand will happen or not, which in turn will spur the GDP, depends on many factors – joblessness and willingness to spend, household expenses in a time when salaries are cut or gone, state and Center’s spending, bankruptcies and ability of companies being able to restart and most important- getting over the loss of human capital through migration.

And which is the most preferred one as per us? Of course the ‘Z’ shaped!