Possible Patterns of Recovery

[Upgrade00]

We are about nine months into the coronavirus outbreak and six months in from when it was declared a pandemic by the World Health Organization. At this point the economic effect of the virus has spread all over with top global economies like; United States, United kingdom, Canada, France, Germany, Italy, and Japan in recession, experiencing sharp economic contractions in the last quarter ranging from 20.4% (U.K) to 7.8% (Japan). Developing economies in Asia and Africa have also been hit hard.

Economic recovery is the next phase after a recession, it can range for a period of months to several years, ideally followed by economic expansion, in some cases, a country can slip back into recession.
While the drop in economies may have been global, the rate of recovery would certainly be different for various countries depending on their preemptive response to the situation.
Some economies are yet to begin the recovery process with nations setting stricter lockdown rules due to second waves, but with advancement in medicine, measures to counter a second wave would likely be more productive. If more people would keep to guidelines.

Recovery is represented using a variety of alphabets;

Source

• U-shaped curve: this is the most realistic recovery pattern most countries would take. According to a poll conducted by reuters;

More than 55% or 87 of 155 economists said the global economic recovery would be U-shaped. Thirty-one analysts said it would be V-shaped and 24 said it be more like a check mark. A few respondents expected a W- or L- shape.

In this pattern, the economy would suffer a sharp decline in key indicators, followed by a period of stagnation which would lead up to an expansion. This is similar to what I have noticed in China, after the drop in the first quarter, they are leading the recovery and have started to slowly return to normal, although actually economic metrics are difficult to identify.

• V-shaped curve; this is the second highest pattern from the polll above and is a very optimistic prediction, as it expects the economy to immediately rebound after a drop without any period of stagnation. I think this may be possible depending on the policies (fiscal and health) which were implemented during the decline. Flattening of the pandemic curve, would lead to reopening of businesses and increase in employment, this would stimulate the economy by creating an enabling environment. In an ideal economy, I think this might be possible, however some financial policies such as; massive money printing or zero or negative interest rate could have a recurring effect on the economy, resulting in a possible W-shaped curve. A second or third wave of the virus can also lead to economic crashes.

• W-shaped curve: this is represented by a sharp rebound followed by similar sharp drop in the recovery curve. The first spike upwards could be said to be a false indicator resulting from cut-and-cover policies meant to stimulate the economy without having any lasting effect. This is followed by an organic growth pattern, or could be repeated over again, if effective measures are not used.

• L-shaped curve: In this case, there is a long period of stagnation following the decline. This would lead to a long period of recovery before an economy enters into an expansion phase.

There's also a K-shaped curve: this is the most dynamic recovery curve which is characterised by varying patterns in various economic sectors and could be a result of discriminatory policies. A k-shaped recovery would split the recovery curve into two, one sector slips into stagnation or continues to decline, while the other begins the recovery process or rebounds back up.

What pattern of recovery are you expecting in your country?

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[abhiseshakana]

The possible form of recovery graph is L-shape because the economic impact of the pandemic is largely determined by the effectiveness of handling the spread and transmission of Covid-19 itself, in this case the health capacity will determine the success of the pandemic containment. The fact is that pandemic management will be more effective if large-scale lockdowns or social restrictions are imposed, but the effects of reimposing harsh virus restrictions can hinder recovery and even trigger financial turmoil. In addition, the government has not been maximal in protecting people affected by the pandemic on the grounds of a budget deficit, even though social assistance and protection are the second priority that must run effectively to continue to support people's purchasing power, with the aim that the economy does not suffer too much.

Due to pessimism about vaccines and fear of recession and depression, many countries whose economies are not opened at the right time, are too hasty and aggressive. Economic activities should be opened after various health indicators show that the spread of this virus has been effectively controlled. This policy made the handling of the pandemic prolonged which meant that the economy was getting worse and it was very difficult to pump up again. The declining inflation rate in several developing and poor countries is evidence of weakening people's purchasing power. Economic growth that falls drastically and lasts a long time so that the economy does not recover for a significant period of time.

[Upgrade00]

The possible form of recovery graph is L-shape because the economic impact of the pandemic is largely determined by the effectiveness of handling the spread and transmission of Covid-19 itself, in this case the health capacity will determine the success of the pandemic containment.

So would countries who were more proactive in handling the situation experience a quicker rebound (like a V or U shaped curve) or would they be slowed down by lockdown in other areas as economics are more synchronized today?
New Zealand were one of the nation who handled the pandemic well and its finance minister expects strong economic rebound from technical recession

I think the post that needs more illustrations will be very lively and better

Agree. I edited the OP a bit, I believe it originally contained too much information which were not relevant to the topic being discussed.

[abhiseshakana]

So would countries who were more proactive in handling the situation experience a quicker rebound (like a V or U shaped curve) or would they be slowed down by lockdown in other areas as economics are more synchronized today?
New Zealand were one of the nation who handled the pandemic well and its finance minister expects strong economic rebound from technical recession

The Covid-19 pandemic has not only brought damage to the national economy and social life but has also caused extreme pressure on the international community, the health care system, and the global economy. Like a race, the sooner a country finishes the race and stem the pandemic, the sooner a country can enter a pit stop, the faster it can prepare a post-pandemic strategy. The sooner you enter the pitstop, the less economic damage will be incurred, which means less costs and leverage are needed to boost the economy.

The existence of a total lockdown that should have been carried out at the beginning of the pandemic was indeed costly but the pandemic did not drag on like what happened in China. So national stability can be maintained and people's purchasing power can be restored quickly and the paralysis of the production sector does not reach above 50%. Imagine if all countries take the same policy, the global supply chain will soon be connected again and the destruction of the global economy can be avoided. So the V-shaped form of economic recovery can be obtained.

[Mauser]

The Covid-19 pandemic has not only brought damage to the national economy and social life but has also caused extreme pressure on the international community, the health care system, and the global economy. Like a race, the sooner a country finishes the race and stem the pandemic, the sooner a country can enter a pit stop, the faster it can prepare a post-pandemic strategy. The sooner you enter the pitstop, the less economic damage will be incurred, which means less costs and leverage are needed to boost the economy.

The existence of a total lockdown that should have been carried out at the beginning of the pandemic was indeed costly but the pandemic did not drag on like what happened in China. So national stability can be maintained and people's purchasing power can be restored quickly and the paralysis of the production sector does not reach above 50%. Imagine if all countries take the same policy, the global supply chain will soon be connected again and the destruction of the global economy can be avoided. So the V-shaped form of economic recovery can be obtained.

The economy took a big hit this year, where almost all countries in the world having negative GDP growth rates. But the stimulus packages came very fast all around the world we saw governments injecting billions of USD into their economies. So while the real economy is trailing, the stock market is doing fine. Dow Jones for example is still positive over 1 year, Euro Stoxx is only slightly down.

I think the recovery in the real economy is depending on the future lock downs, if there is a second one coming or not. As for the stock market I don't see such a big risk because the government will just keep throwing more money into the fire.

[sabbir2world]

I just hope it doesn't hit that bad again! This time the economy might sink to the lowest. Inflation is not a problem anymore. I mean the governments all around the world printed shit load already lol. Let's hope for the best!

[Upgrade00]

Imagine if all countries take the same policy, the global supply chain will soon be connected again and the destruction of the global economy can be avoided. So the V-shaped form of economic recovery can be obtained.

I agree. For such a synchronized V-shaped recovery to take place, nations would need to reopen their economy simultaneously (or within close time frames), inorder to reconnect the supply chain. The United States and China are trade partners and are the highest importers of products from each other. So, if China opens up (as is happening) while the U.S remains closed, there would be slow growth rate as they are working without a major market for their product and would also lack imports.

So while the real economy is trailing, the stock market is doing fine. Dow Jones for example is still positive over 1 year, Euro Stoxx is only slightly down.

This could be a representation of the K-shaped recovery curve; where one sector rebounds due to stimulus or government grants, while another is neglected and continues to slide down or remains stagnant.

I just hope it doesn't hit that bad again!

Keeping to health guidelines would reduce the impact of a second or third wave. Fear index of the pandemic has reduced over the months and people now defy lockdown laws (at least in my area), this increases the possibility of another wave.

[teosanru]

I think U shaped delivery would be prominent in developed countries like US and Europe. For India many analysts have predicted a K style recovery graph which isn't really a great thing. And this thing can be easily seen from our markets. While the Market carries it's sentiments along with it yet it's evident that a -20% GDP shrink hasn't been much evident on the Indian stock markets. Moreover many companies have increased their market cap in this Covid times while on the other hand a normal small scale business has been badly hurt. Until Vaccine I doubt that this situation would rectify.

[jademaxsuy]

What impact could it be to the patterns when it comes to trading? I do wanted to know too if traders are following also in this trend for their decision making when doing some trades. i know how hard to do trade but others had step up by using bots and somehow manage to get returns as well (good for them). If this is one of their tool.  in trading then glad to know about this tool. I am a little bit trading myseld too but done it manually and not like as a day trader instead short term trading is the only way I can manage but still made some failed attempts.

[BrewMaster]

very interesting information here that i didn't know about.
but i think it is too soon to start discussing the recovery patterns at this point because the crash part is not yet over and with the way this nasty virus has been spreading lately and the fear that it has started mutating i'm afraid the real effects of the economical crash are yet to come.

and i think the recovery in some cases could depend on the type of the crash itself. a gigantic crash might have a W shape recovery while a small one be followed by a U shape recovery.

[wxa7115]

very interesting information here that i didn't know about.
but i think it is too soon to start discussing the recovery patterns at this point because the crash part is not yet over and with the way this nasty virus has been spreading lately and the fear that it has started mutating i'm afraid the real effects of the economical crash are yet to come.

and i think the recovery in some cases could depend on the type of the crash itself. a gigantic crash might have a W shape recovery while a small one be followed by a U shape recovery.

I agree, if a recovery is coming then the pattern that I believe will manifest itself will be the ‘L’ one, this is because the pandemic is not over and people are afraid not only of the pandemic but of the economic crisis, there cannot be a recovery when people are distrustful and they are keeping their money under their mattresses in case things gets worse, this means that even if business are open now the economic activity is low.

However there is no telling if a recovery is what follows next, after all a recession can also become a depression and this is an scenario that is not outside of the real of possibility especially with the economy being as weak as it is now.

[NotATether]

Technically, different parts of countries recover at different speeds e.g. cities, providences and states, which implies a K-shape graph. But to keep things simple I'll mention that most countries are right now are experiencing W-shape recoveries. The pandemic isn't over yet, so any attempt to reboot their economies will have limited success and will fall back to square one if/when people get infected by contact again. After the pandemic is a different story, because it's still too early to forcast when it will end.

Think of it this way. Lots of jobs have been lost during this pandemic, perhaps more than in 2008. If you recover the job levels to normal, you pretty much successfully rebooted the economy. But the difference between this crisis and the one in 2008 is that the 2008 crisis was entirely the fault of bad risk management by house mortgagers, given that they already took a massive debt from homeowners who would eventually default, the risk management was supposed to cover their hides in such an event. But they didn't use risk management and bought (on a loan) at high leverage at their trading markets, lost their trades, and their reserves diasappeared. At this point the banks are insolvent but the outstanding home mortgages gave off the false impression of stability so nobody peeked behind the curtain. The ugly things started happening when these people defaulted on their mortgages.

It seems as though some bankers think that debt and loans can be used as a form of hard money, although their value is not guarenteed. I'm not going to derail your topic writing about the ramifications of this thinking but suffice it to say, it's a deadly idea.

Anyway, it also happened that people in position of power at the Federal Reserve (Greenspan in particular) did nothing to force banks to use better risk management, so negligence on their part caused a crisis that could've been avoided.

As for this year's crisis, it is nobody's fault that lead to this economic slump. No central banks were being careless, at least not to a magnitude that would've lead to a disaster like this, and banks and institutions around the world weren't trading as recklessly as 2008 levels. This is a recession that could not have been avoided even with the strictest policies, and ironically which some people predicted to happen for the US by Q3 2020, before Covid-19 appeared in China.

It took 6 years for job levels to reach their original amount after 2008, and that's without having to worry about health procedures. Here, we can't even start the procedure of making more jobs until everyone is vaccinated or develops immunity to covid. And there is a large gargantuan percentage more jobs to recover this time around, and for all countries not just the US.

Assume a vaccine is made after 1 year. Then everyone is treated after another year. With the larger amount of jobs lost, multiply the 6-year recovery figure by 2. My senses say it could be 14 years before every single county makes back their job levels, though their economies will take a much shorter time to bring their foriegn trade levels back to normal, say 3-5 years from now.

[el kaka22]

Unfortunately bitcoin has always been a W shape one and that always hurt a lot of regular traders, obviously the long term investors do not get that much interested in it because they do not really have anything different in the end, but the regular traders do get affected by it.

For example if you bought at 10k, and you are a long term investor, doesn't matter if it drops to 5k and goes back to 10k because you are already long term and you are back to where you started but if the same happens for a trader there are tons of ways along the way where you can lose money as well (but ways to make profit too). So at the end I believe it is quite important that we should be aware of what we should do when it comes down to W shaped or any shaped, if we are long term we should be fine.

[Yatsan]

Seeing such graphical representation of economic recovery after recession brought by the pandemic makes me see and realized that among those graphs, W shape curve would seems to be problematic to be stated as a flow of recovery for the flaws that can be seen after an upline stroke there goes downline which shows that the recovery does not take place on a stabilized manner compared to other flow curve striking upwards to flat line stroke. Those are for observable analysis done by a glance to gain a simple interpretation on how certain recovery takes place.

Technically, different parts of countries recover at different speeds e.g. cities, providences and states, which implies a K-shape graph. But to keep things simple I'll mention that most countries are right now are experiencing W-shape recoveries. The pandemic isn't over yet, so any attempt to reboot their economies will have limited success and will fall back to square one if/when people get infected by contact again. After the pandemic is a different story, because it's still too early to forcast when it will end.

This is certainly true and agreeable for me. The strike points that a W shape curve will be a prominent representation on how economic statuses of different countries can be shown amid this pandemic for there are still lots of negative effects that this pandemic is continuously giving out which makes the recovery unstable striking up and down. The pattern recovery might be taken to shape curves V, U and L once the pandemic is already done once the vaccine to end this pandemic has been successfully discovered.

[Upgrade00]

Assume a vaccine is made after 1 year. Then everyone is treated after another year. With the larger amount of jobs lost, multiply the 6-year recovery figure by 2.

This is probable, as the lockdown has lasted a long time, meaning some temporary job losses would have become permanent, due to business shutting down totally and going bankrupt. I would however still expect a much quicker recovery, particularly for larger economies; A reopening would mean lots of new opportunities for start-ups in various fields (I would assume loans would be made easily accessible), new businesses would be set up to replace the ones lost, creating employment.

During the brief reopening at the mid way point of the year, there was a huge rise in employment within the span of a month, with the United States adding about 4.8 million jobs in June, although the numbers started to drop in July (1.76 million) as the health effects of the immature easing of lockdown began to manifest.

though their economies will take a much shorter time to bring their foriegn trade levels back to normal, say 3-5 years from now.

Is there a slight possibility that countries would begin to look inwards for resources they need?
A nation which is self-sufficient would be less hit by the effect of a global lockdown should there be another similar pandemic in the future, in preparations for this, governments could make strides to become as self-sufficient as possible using the resources they have. Although If possible, this would only work to an extent, as exports and imports are both integral to an economy.

[abhiseshakana]

Is there a slight possibility that countries would begin to look inwards for resources they need?
A nation which is self-sufficient would be less hit by the effect of a global lockdown should there be another similar pandemic in the future, in preparations for this, governments could make strides to become as self-sufficient as possible using the resources they have. Although If possible, this would only work to an extent, as exports and imports are both integral to an economy.

The pandemic teaches that globalization and interconnection have made the virus spread unstoppable to almost all corners of the world. This phenomenon raises the awareness that national independence and resilience is the key to overcoming a pandemic that may be worse in the future. Each country will try to create its own supply chain system, instead of leveraging it on the American global supply chain. China, Vietnam, Taiwan already felt the bird flu pandemic in 2003, so when they faced the Covid-19 pandemic they were much better prepared.

The Government considered this matter because it created momentum for a reorganization of individual countries on the grounds of national security. A nation is said to be truly sovereign when it is less affected by the maneuvers of other countries. To achieve this sovereignty, a country must have national resilience, be it technological, military, economic, social, food and health. Each country will increase people's purchasing power along with the opening of independent industries. Strong domestic consumption can be a buffer for the national economy, an increase in purchasing power followed by an increase in production will accelerate the economic growth of a country.

[Jet Cash]

It isn't a pandemic, it is more of a casedemic. All the reports are of increased infections, and these seem to be overstated by a massive amount. The real death and ICU admissions are kept pretty quiet, but can be surmised when one considers the numbers of empty hospitals. Fairly obviously the panicdemic (sic) is designed to manage an economic reset, and a massive transfer of wealth. This leads one to believe that the only letter that describes the recovery is "K". Once you accept this, and adjust your life accordingly, then you can get yourself into the upper part of the letter, and stop your slide into the food bank economy.

[Wind_FURY]

I believe that could be applied to price-charts? Bitcoin OGs, and the Bitcoiners who went through the experience of bull markets and market crashes/bear markets since before 2014, which curve-shape is the most recurrent?

[lixer]

The truth is that I don’t know what will happen next, but I am always positive for my country and maybe the U-shaped curve I guess; I believe that as time goes on things will start getting better and the economy will start riding again.

Although that will also be depending on so many factors which I wouldn’t be able to mention all of them, but the actions the government is taking in making sure that things gets better in this kind of situation we are in is one other thing that will help the economy to start going the positive direction.

[Harlot]

Predicting something now is hard to expect on especially if we really don't know how the government will react after a vaccine is created. For sure they would re-organize their budget allocation as well as think about where they would focus on and if they have enough money in that area. They would also think about borrowing money which for sure a lot of countries will do, aside from the government we can expect that some companies would still be affected in this recovery and I don't think most small and medium enterprise would be thinking about expansion so it's really hard to predict the exact thing on how our economy will be recovering.