Shapes of Recovery? Whether We’Re in Line for a Recovery, And, If So, What Shape That Recovery Might Take

It can be hard to get a handle on the geometry of markets – and never more so than in the aftermath of economic dislocation. But now the dust has begun to settle on the biggest sell-off in a generation, the next question might be Shapes of recovery? whether we’re in line for a recovery, and, if so, what shape that recovery might take. Depending on the hit to Gross Domestic Product (GDP)1 , history tells us we could be in line for any number of different scenarios.

LL-shaped V-shapedV UU-shaped WW-shaped ZSideways - Z Square root The worst of all scenarios. A permanent loss The economy recovers quickly after a sharp An extended economic downturn but with an The market has a sharp fall, followed by a sharp rise, Here, in the best of all scenarios, the The square-root recovery of economic capacity and an extended slump. downturn. eventual return to pre-crisis levels. followed by another fall and another rise into recovery. discovery of effective measures to ﬁght An initial relief rebound Less a recovery; more a prolonged recession Examples: the US recession of 1953 – a Example: The 1973-75 Nixon recession – Example: From January to July 1980 the US economy Covid-19 unleashes pent-up consumer followed by a plateauing of or (whisper it ever so quietly) a depression. response to the Fed raising interest rates. caused in part by the OPEC oil embargo. experienced an initial recession, then entered demand, leading to a mini-boom before economic growth. Example: The Great Depression (1929-1939). recovery for almost a full year before dropping into a the economic trends reverts to its second recession in 1981 to 1982. pre-crisis trajectory of steady if not spectacular growth.

L-shaped V-shaped U-shaped W-shaped CONSIDER TO SHAPES OTHER Doughnut The R 25 ECONOMICS NUMBER 1

20 The brainchild of Prof. Kate Raworth, And ﬁnally… The R number. donut economics provides a roadmap The key to everything. The R number for government-led spending focused denotes the number of people one on sustainable infrastructure. The infected person will pass Covid-19 aim would to stimulate the economy on to. Anything above 1 is bad; 15 US GDP • Unemployment • Business Cycle to counter the impact of Covid-19 anything below 1 is progress. while laying the foundations for a more socially inclusive and ecologically sound future. 10

5 4.5 US Growth % Growth US 0

-5 Where next? US real GDP, annual percentage -8 -10 change (IMF forecasts) 1930 1931 1932 1934 1935 1936 1937 1938 1940 1941 1942 1943 1945 1946 1948 1949 1950 1951 1952 1953 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1975 1977 1978 1979 1984 1985 1986 1988 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2003 2004 2005 2006 2007 2009 2011 2012 2013 2014 2015 2016 2017 2018 2019 1944 1929 1933 1939 1947 1954 1973 1974 1976 1980 1981 1982 1983 1987 1989 1998 2001 2002 2008 2010 2020 2021

1 2 3 4 5 6 8 9 12 13 14 15 16 18 19 20

7 10 17 What was happening at the time 11 1. Aug peak and Oct. market crash 2. New Deal and March trough 3. End of the Great Depression 4. Post WWII Marshall Plan of economic aid for Europe and beginning of the Cold War 5. May trough, Dow at 1929 level 6. Vietnam War and Stagflation: Slow economic growth and relatively high unemployment, or economic gold standard ended, Nov. peak 7. Stagflation (ie. inflation without growth), Watergate US political crisis, Fed raised stagnation, which is at the same time accompanied by rising prices (i.e. inflation). rate 8. Expansion, Fed cut rate 9. Jan. peak, Fed raised rate, July trough 10. Reagan era, Expansion peaked in July 11. Nov. trough, Fed cut rates 12. Reagan-era defense spending 13. Black Monday market crash 14. Savings & Loans Fed: The Federal Reserve is the central bank of the United States. Crisis: catalyst for a recession 15. Long Term Capital Management crisis: catalyst for a recession 16. March peak, 9/11, 1 and Nov. trough 1 7. Expansion 18. Contraction and Global Financial Crisis. 19. Obamacare (US healthcare programme) . A measure for a nation’s output over a given timeframe. 20. Covid-19 pandemic.

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