The COVID – 19 has taken a huge toll on the economies worldwide including India, leading to a sharp slump in growth. The IMF has, in fact, stated that as a result of the pandemic the global economic growth is expected to contract by 3% in 2020, which is worse than the global financial crisis. Currently, countries are trying to take a balanced approach towards containing the virus and at the same time restarting the economy and India is no different. Many economists and experts have diverse views on what the shape of India’s economic recovery would look like.
(Experts use the shape of the letters in the alphabets to describe recessions and recovery of the economy)
Let’s take a look at what these recovery shapes suggest.
V – Shape Recovery
In a V-shaped recovery, the economy witnesses a sharp decline for a short period due to a sudden shock, but it does not last long and the recovery is equally fast as the decline.
In the current scenario, the pandemic has led to a sharp slump in growth. But many experts believe that the recovery would be equally fast. The reason given is a) there is no capital lost due to the pandemic and b) the stimulus package provided by the government would incentivize banks to lend due to credit guarantee which would ease liquidity concerns for businesses. The US economy could also witness a V-shaped recovery due to its deepest contraction (since World War II) followed by an unprecedented policy response.
U – Shape Recovery
Next is a U – shaped recovery that is similar to a V-shape but it covers a longer time frame. In this GDP growth shrinks for several quarters and the recovery is gradual.
Some experts believe that India’s economic recovery could be slow due to lower investment and low productivity. Even the Reuters poll indicated that global economic recovery would be U-shaped citing that lockdowns would continue until there is a breakthrough in the treatment of Coronavirus.
W- Shape Recovery
In this, the economy sees a sharp decline in growth, but recovers for a short period and then again falls into recession before recovering. This idea has gained traction worldwide recently due to the possibility of a resurgence of the virus. If there is the second wave of infections, it would lead to more lockdowns. This would stall economic activity until the cases reduce or there is a vaccine.
Nike Swoosh Mark
Next one is new in contention which is the “Nike Swoosh Mark” aka the logo of Nike. As the shape suggests, a sharp decline in economic growth is followed by a slow and gradual recovery that could take several quarters. This is a possibility as the effect of lockdown would slowly taper off on account of calculated relaxations.
We also have L-Shaped which is possibly one of the most dangerous. In this, the economy falls into recession rapidly and does not return to the trend line growth for several years. The probability of this is less but it would not be prudent to write it off completely. Let’s hope it does not come to this.
Truth be told, it is extremely difficult to predict how long will the economy take to recover since there are still many unknowns about the virus and hence such diverse opinions.
What do you think about how will the Indian economy recover? Leave your comment below.
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