Glenn Melcher shared a great post lately that prompted me to write this post.
It is about the shape of economic recovery. The post suggested that China is enjoying a V-shaped recovery. This shape means that the economy falls sharply but then rises sharply as well.
This V- shape reminded me of the V-shape of a flying flock of birds. Each bird makes it easier for the birds flying right behind to use much less energy than if it flew alone.
The V-shape of the economy means that each rising sector assists the sector rightly behind it to “fly” easier. It is a cascading effect.
How about if we imagine two flocks of birds flying in opposite directions- with one flock flying up and the other one down? This is the metaphor for birds economies in which some sectors grow up and others witnesses decline. What shape of recovery shall we get?
There are so many different views.
One view is that the economy shall witness “a double V-shape”- that is W-shape. It means that the economy witnesses decline versus growth and declines again and growth again. The width of the W determines the slope and the time needed for witnessing a growth or decline to start in the economy.
Other studies suggest L- shaped recovery. Investopedia defines this shape of recovery as “L-shaped” recoveries are characterized by persistently high unemployment, a slow return of business investment activity, and a sluggish rate of growth in economic output, and are associated with some of the worst economic episodes through history”.
The previous V, U, W, and L Shaped Recessions are discussed with a video explanation in this post published in Learning Markets. This reference has a video embed to explain these shapes of recovery from recession.
Chief Executive covers the above-mentioned shapes in an interview with leading economic experts and they differ in their predictions of the shape of economic recovery.
Market Watch expects a “square root- shaped” recovery. As the name suggests, the economic recovery has a shape of the square root. It starts with quick decline in the economy before it starts to recover.
K-shaped recovery is suggested in a post by MARKETPLACE. K-shape: has one leg up, one leg down. In this scenario, a vertical decline — as equity and oil markets suffered in March and April — is succeeded by not one, but two recovery patterns, one sharply up and one sharply down.
The above review shows clearly that prediction is a hard nut to break. I believe the metaphor of flocks of birds flying in opposite directions may help us in improving our understanding of the interactions between various economic sectors.