The world economy has its ups and downs. It’s a cycle of economic boom and recession. Every time there is a boom, a certain asset class gets a lot of attention and then due to some internal or external reason, the bubble bursts and the economy falls into a recession. This cycle can take place on a global or a regional scale. Economists track these movements in the economy in the form of GDP graphs which allow them to analyse various patterns and shapes formed and then predict future economic patterns using this information. Let us look at some of the popular economic recovery shapes.
V-shaped recovery
This shape is formed when an economy falls to a certain point after which it bounces back and resumes its usual growth. This is actually one of the desired routes for recovery and may generally not happen due to hiccups along the recovery. One of the inferences of this pattern is that the economy will take similar time to return to pre-recession scenario as it took to fall to the lower end of the curve.
U-shaped recovery
This shape is formed when the falls and the economic damage is sustained for a longer time before the economy gradually recovers. The economy does reach the previous growth rate and the damage is sustained for a longer time. The observation regarding recovery time is that the economy will take a significantly shorter time to fall and a much longer time to recover and get back to its previous state. The economic experts have predicted this shape for the current state US economy. The pertinent question is that how and when will the North American economy start to return to normal?
W-shaped recovery
A W-shaped recovery curve has double dips. What it means is that once the economy falls to a certain point, it starts recovering until it reaches a certain point and it suddenly starts falling again. It then bounces back to reach its previous potential after that. But the point to be noted it that the trough during the second dip is higher than the first dip and subsequent higher dips indicate a recovering economy.
L-shaped recovery
This is one of the most pessimistic scenarios. Here, the prediction is that the economy will fall during a recession and then instead of recovering fast, it will assume the previous growth rate and the GDP will start to recover slowly. This type of recovery may have a huge impact on the economy and the living standards. It takes long for the economy to reach pre-recession standards. This is one of the worst possible scenario for the shape of economic recovery.
Swish-shaped recovery
This shape is characterized by a sharp fall in the economy causing a recession and then the recovery of the economy is slower compared to the fall. The difference with a U-shaped economic pattern is that the economy doesn’t linger in its stunted state for a long time. It rather starts recuperating as soon as it touches the low point in the cycle.
These are the economic patterns used by Economists to make compare different economic scenarios and then come up with reasonable predictions regarding the recuperation of an economy during a recession.
