Economic Recovery

• About:
  • Economic Recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity.
  • Normally, during an economic recovery, GDP grows, incomes rise, and unemployment falls and as the economy rebounds.
• Types:
  • Economic recovery can take many forms, which is depicted using alphabetic notations. For example, a Z-shaped recovery, V-shaped recovery, U-shaped recovery, elongated U-shaped recovery, W-shaped recovery, L-shaped recovery and K-shaped recovery.
• K-Shaped Recovery:
  • A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
  • A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
  • This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.

• View of Economist on K Shaped Recovery:
  • The government needs to do more to prevent a K-shaped recovery of the economy hit by the coronavirus pandemic.
  • The Indian economy has “some bright spots and a number of very dark stains” and the government should target its spending “carefully” so that there are no huge deficits.
    • The bright spots are the health of large firms, the roaring business the IT and IT-enabled sectors are doing, including the emergence of unicorns in a number of areas, and the strength of some parts of the financial sector.
    • The “dark stains” are the extent of unemployment and low buying power, especially amongst the lower middle-class, the financial stress small and medium-sized firms are experiencing, “including the very tepid credit growth, and the tragic state of the schooling”.

V-shaped 

• It is characterised by a quick and sustained recovery in measures of economic performance after a sharp economic decline. 
• Because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best-case scenario given the recession.

U-shaped

• U-shaped recoveries happen when a recession occurs and the economy does not immediately bounce back, instead tumbling along the bottom for a few quarters.
• It is similar to a V-shaped recovery but more prolonged.

W-shaped

• A W-shaped recovery is when an economy passes through a recession into recovery and then immediately turns down into another recession. 
• Hence, it is also known as a double-dip recession.
• W-shaped recessions can be particularly painful because the brief recovery that occurs can fool investors into getting back in too early.

L-shaped

• It occurs when, after a steep recession, the economy experiences a slow rate of recovery.
• L-shaped recoveries are characterised by persistently high unemployment, a slow return of businesses’ investment activity, and a sluggish rate of growth in economic output.
• They have been associated with some of the worst economic episodes throughout history.