V, W, or L curve? An introduction to economic recovery in six infographics

Since the beginning of the coronavirus crisis, it has become a habit to draw curves with metaphors. It is difficult to miss the images used to account for “sombrero bumps” or “bells”, rises, slightly flat peaks, and recurrence of contamination.

But the health crisis is also economic, global growth collapses, and various trajectories that can form so many curves that economists have found an unstoppable way to explain in two words. : Primer … Exactly.

From the V-curve of victory for spectacular recovery to the L-curve for sustainable growth at the daisy level, here from the most optimistic to the most pessimistic, since the Great Depression. Here are six scenarios for getting out of the worst recession.

“Utopia” scenario: V-curve

Needless to say from the beginning, this scenario, which is still possible at the beginning of March, has since fallen into the category of “fiction”. It’s a shame because it was fascinating. It recovered as soon as it resumed, thanks to the decline in overall growth due to the closure of production sites around the world and the very strong recovery in consumption. This is possible for two reasons. Partial unemployment, and especially the large savings accumulated during captivity.

In 1954, the United States escaped from the cruel recession in a few months and found virtually full employment, thanks to the surge in consumption supported by tax exemptions and social payments. Are you heading for this happy ending? Most institutions do not believe it, with the exception of the Bank of England, which plans to recover all losses in 2020 as early as 2021.

U-shaped scenario, optimistic but realistic

It’s the same idea as V, but the most affected sectors such as subsequent takeoffs, a sort of stagnation in the Valley of the Waves, and tourism are struggling to reopen, shifting time recovery.

This is a fairly “classical” scenario, for example following the 1973 oil crisis, and according to the European Commission, many European countries, including France, can still be considered. Unless there is a second wave …

Elongated comma, long recovery

This is a sluggish scenario. Rather than staying very low before a sharp rebound, activity is fairly fast, but slowly recovers, struggling to regain pre-crisis levels.

This is a scenario experienced by some emerging economies, including India, after the 2008-2010 financial crisis. Recovery began quickly, but growth did not return to its original pace.

Lethargic L

This is a very simple … crisis exit scenario with no escape from the crisis. The recovery of production is further hindered by the fact that purchase orders are not full, bankruptcies are increasing, unemployment is exploding, and consumption is declining …

The vicious circle that Japan experienced was caught up in a deflationary spiral in the early 1990s after the bursting of the financial and real estate bubble. So far, we are not there.

W, yo-yo economy

We are in a scenario that everyone is afraid of. They are very unstable and are scenarios that involve recovery, then a second wave of epidemics, and thus a new closure of the production site.

The economy then collapsed in 2008 due to the subprime crisis, as in the euro area, after which the slope barely recovered and was squeezed by various debt crises two years later.

WL, roller coaster … and crash

If W is feared by all economists, at least W has the advantage of giving favorable results. If growth does not resume at the end of this roller coaster, a WL curve will be created.

A strange decade just over for Russia can explain this scenario. The Russian economy, which was hit by the 2008 financial crisis, was once again squeezed by the war in eastern Ukraine, escaping capital, falling oil prices and leading to sanctions … toxic to foreign investors. Russia has finished its decade with slowing growth. This is far from the arrogant pace that we still experienced in the late 2000s.