At the beginning of the outbreak, COVID-19 impacts were underrated; policymakers, analysts and different economists predicted a V-shape recovery in the aftermath of the crisis. However, with the significant global impact the virus has had on several sectors, a V-shape recovery would be a fantasy. Currently, in the scenario that the virus will be contained soon, global growth has been downwards projected to grow at 1.3 per cent from the 3.3 per cent forecasted by IMF in January. With a continuous decline in global growth and a predicted recession to hit many of the world’s biggest economies in the coming quarters, the recovery doesn’t look anything like a V-shape. So, given the current situation, the shape the global recovery is going to have is up for discussion. Let’s start with what a V-shape recovery would have looked like. In this scenario, the economy was expected to suffer a sharp economic decline but quickly recover, mainly with the boost from increased consumer demand and spending. However, in the current situation, global demand has significantly dropped with a momentous loss of demand, and supply chain distortion’s that will take longer than expected to repair. Therefore, with fading hopes of a V-shape recovery, forecasts seem to show a U-shape recovery as the best-case scenario- given the virus lingers into June and social distancing rules take time to be loosened according to Bloomberg, or in contrast, an L-shape recovery in the worst-case scenario- if new cases of infections keep rising into the second half of 2020. A U-shape, is a scenario where metrics like GDP, industrial output, employment… decline and progressively rise back over time, mostly 12- 24 months. On the downside, the L-shape would be a scenario where the economy experiences a decline, followed by a weak or no growth for a long period. Since January, over a million cases and almost 60 thousand deaths have been reported, with the virus spreading in almost every country in all continents. Over the past three months, we have seen markets experiencing high volatility, commodity prices dropping, an increase in unemployment both high- and low-income countries, hold on all international travels, cancellation of international events, and a collapse in most businesses especially small and medium. In hope of a V-shape recovery, the economy would have expected to bounce back by the beginning of next year, however, given the extended length of this crisis and the pace at which the virus is spreading, there is a lot of uncertainties but for one thing, we cannot expect a V-shape recovery. The pace at which the virus that originated from China, then to all Asian countries, Europe, North America and now Africa is spreading presents a challenge of different counties hitting the pick of the disease at different times, hence recovering at different times which makes the economic recovery on a global scale hard and longer. For example, China has shown remarkable progress in recovery, but one of its biggest trade partners, the USA, is still closed down with little to no economic activity which also affects China’s economic recovery. If this pattern holds different economies are going to have different timelines of economic recovery, and aggregated, it is most likely going to lead to a prolonged L-shape recovery. Therefore, if we only focused on the three common letter shapes, I would easily base on the outlook of the global economy and lean towards the idea of an L-shape recovery which is a prolonged recovery. However, recently, on a positive note, an article by Art Kleainer introduced me to another promising possibility of a Y-shape recovery. In this Y-shape recovery, “the economy divides into two tracks: slow and fast”. According to Kleainer, the part of the graph that flattens out before picking shows sectors that would take a while to recover, like airlines, hotels, tourism, automobiles, and energy. While, on the part of the graph that picks up present the opportunity for sectors like, online retailers, manufacturers, healthcare providers, and pharma companies to pick up, with the expectation of these companies becoming very productive and flourishing, leading to an increase in consumer spending hence a recovery of many businesses. Today’s performance of the economy might be leaning to an L-shape recovery, though a U-shape or a Y-shape recovery is still possible. Failure to contain the crisis will make it the “mother of all financial crises”. Therefore, there is no doubt that the intensity of the impact of COVID-19 will depend on how long the crisis will last, however, decisions made by policymakers on how to contain the crisis while keeping the economy function will enact the shape the global recovery will take.
