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Friday, April 16, 2021

Will there be a V-shaped economic recovery after the COVID-19 pandemic? Here’s what you can expect

A recession is inevitable. Will it be V-shaped economic recovery or U-shaped or L-shaped? The current narrative seems to be changing about how the recovery of the world economy will look like after the COVID-19 pandemic is over for good.  Experts, forecasters and economists are in two minds about this. But realistically what we can expect ?

Due to the sudden imposition of the lockdown and numerous restrictions in place, economists predicted that with this sudden downturn or shock to the supplies, there would be a solid rebound with people getting back to work and governments turning back the switch on before any long-lasting damage is done to the economy. Outputs would surge back on track pointing towards a sharp acceleration, which is the base of a V-shaped economic recovery. However, that won’t likely be the case or even be plausible at this time.

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Markets reopen but with a lot of caution, but not many shoppers

The center of the deadly Coronavirus outbreak — the Chinese city of Wuhan just opened for business recently towards the end of last month following a stark decrease in the number of positive cases. According to various reports, Chinese authorities lifted a lot of controls that were imposed during the two-month-long lockdown that stopped about tens of millions of people from stepping out of their houses. Now, what some of the experts call ‘revenge shopping’ or spending was on the rise in China immediately after the lifting of restrictions. However, a new survey by researchers from China’s Southwestern University of Finance and Economics has revealed that this sudden consumer rebound will be unlikely in the second quarter. Residents will be reluctant to overspend and rather save even as the Coronavirus pandemic is brought under control. Over 50 per cent of the Chinese households have planned to increase their savings and cut back on unnecessary spending after the outbreak is contained. While 40 per cent will maintain normal shopping patterns and only a staggering nine per cent would buy more, the survey has found.

People wearing surgical mask walking out from subway in Shanghai Photo: shutterstock.com/Robert Wei

A similar scene was prevalent in Berlin where the shops were just reopened after a five-week-long shutdown, but businesses haven’t been booming. While some countries are following suit in easing restrictions and letting some of their businesses to open eventually, the others are getting ready but with extreme caution. Companies, markets, businesses and people have found that severe restrictions have only slowed the progression of the infection or the virus, not exactly halted them. Businesses are scared that if they jump into the bandwagon without thinking twice, ease too much then there will high chances of new waves leading to stricter lockdowns again after the Coronavirus outbreak is over. Researchers, experts around the world have advised governments to not completely do away with restrictions until a vaccine or a cure has been implemented. What all of this essentially means is that a V-shaped recovery of the world economy is highly unlikely as businesses will be nervous and filled with uncertainty about resuming all-round services while consumers too won’t get back to spending as quickly as they would have if the pandemic didn’t strike.

What exactly is a V-shaped recovery?

Evident characteristics of this type of recovery would include a stark decline in GDP with unprecedented spikes in unemployment across sectors followed by a breakthrough and strong recovery. V-shape recovery is the typical shape for a recession, as it has been observed that the strength of the economic recovery is usually closely related to the intensity or severity of the preceding recession. Given the current scenario amid the Coronavirus outbreak, a V-shaped recovery would mean an immediate recovery in the third quarter, the Coronavirus pandemic solved and the world economy recovering lost output by the end of this year — chances of which seem quite bleak.

Why are economists almost certain that it won’t be plausible?

What experts from one school of thought have already said and we quite agree is that the economic recovery won’t even be U-shaped due to the fact that in the current circumstances, a COVID-19 vaccine or cure seems to be a far-fetched reality. It would take at least a year or even more is what researchers, scientists have been saying since the virus began spreading at an alarming rate. In addition, the economic recovery could also be modest due to the high unemployment factor. An L-shaped recovery also doesn’t quite seem like an option either. Experts have revealed that their assumptions suggest that the economy will open in a few weeks, the Coronavirus will become more controlled and adequate stimulus measures will be put into place. Perhaps an upward sloping L or a swoosh could still be the closest descriptor.

V-shaped economic recovery
Indian man weaving traditional paithani saree on handloom, paithani saree is famous for hand woven traditional sarees.Photo: Shutterstock.com/CRS PHOTO

However, the economic policies in place across the world still imply or point towards a V-shaped recovery planning. The idea that most governments likely had were to combine severe temporary restrictions with a massive amount of temporary fiscal and thus a high level of monetary support. What was thought is that boosting demand while supply was depressed and scanty wouldn’t risk inflation as the crisis would soon be over and supply would bounce back immediately. For a similar reason, there was no need to be worried that aggressive fiscal expansion would pile up too much debt. However, as the slump doesn’t seem to be over anytime soon, those fears will resurface. The longer all of it goes on, the more likely it is that the shocks to supply and demand will only amplify each other and V-shaped economic recovery will become more obsolete.

What could likely be the game changers at this stage?

While things can take an abrupt turn for the worse, then perhaps things could take an abrupt turn for the best too, who knows? For creating a V-shaped economic recovery and for things to be better, there are a few things that need to develop, be implemented and organised, all of which revolve around the COVID-19 virus. As some of the following starts to develop, our economic forecast most likely will change as well:

  • Vaccine– A vaccine could be a real game-changer in this field. The team at Oxford University in the United Kingdom has already started vaccine trials in monkeys and expect to soon move to human trials as well. Let’s hope for the best, shall we?
  • Treatment– While several doctors and scientists have claimed that Hydroxychloroquine helps in the treatment of almost 91 per cent of the affected patients, there is yet to be any kind of significant proof that it can be considered as a fool-proof treatment for the COVID-19 virus.
  • Widespread testing– While testing figures across the world point towards a sad state of affairs, we can only hope that the governments pay heed to the rising concern. Almost all experts from anywhere around the globe have said that increase in the number of testing, rapid testing mechanisms can help in stopping the spread further.
  • Hospital capacity– If you look at India alone, according to data from the National Health Profile 2019, there are 7,13,986 total government hospital beds available in the country, which amounts to 0.55 beds per 1000 population. We can only hope that our infrastructure is equipped or developed to handle a pandemic situation like this.

So what’s the answer?

Simply lifting all the severe restrictions and lockdowns could definitely backfire. It is almost certain that it would cause new and bigger waves of infections, numerous additional deaths, cause for panic and rising alarm, and completely new rounds of measures to throttle the economy. In the current scenario, what makes sense is a measured and gradual easing of the restrictions and paying close attention to the effects.

We should all know that the crisis isn’t ending anytime soon and we have to adjust our lifestyles according to this. It is also important to understand that we need to manage it more sensibly and realise how little we know about it even after months of research. There will, in the future come a time to repair the nation’s roads, bridges, other infrastructures but right now, we need to focus on repairing people’s lives or at least try to overcome them until things eventually get back to normal.

Note: International Monetary Fund chief Kristalina Georgieva has called the Coronavirus pandemic the worst crisis since the Great Depression a century ago and warned the damage could linger even after lockdowns are lifted and the spread is somewhat controlled. The IMF’s Georgieva also warned that, even if there are chances that the pandemic will be contained quickly, with most countries seeing a major decline in incomes, the global economy will likely see only a “partial recovery” next year, and “it could get worse.”

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