In June, the National Bureau of Economic Research announced that we are in a recession. Unlike previous recessions, this one was caused by the impact of our public health crisis rather than by an issue in the financial sector.
Now economists are talking about the what and when of recovery. What shape will it be? A “V”? A “W”?
What does that even mean? Here’s a primer.
A V-shaped recovery means that the economy rebounds quickly to where it was before the crisis. The recovery economic data points represented on a chart – a sharp decline followed by quick upward trend – are in the shape of a “V.”
This is the most optimistic outlook because the economy will bounce back as quickly as it has declined, with minimal long-lasting financial damage. The recession of 1990 to 1991 and the recession of 2001 are examples of V-shaped recoveries. Each only lasted for 8 months.
A W-shaped recovery, sometimes called a “double dip,” means that the economy moves rapidly into a period of recovery – the first V – and then dips down again into another recession. The two economic declines create the shape of a “W.” An example is the two back-to-back recessions in 1980 and 1981 following the oil and inflation crises in 1979.
A W-shaped recovery is more painful because investors may make decisions based on the first rebound, and then see the economy dip again.
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