There are a lot of discussions on the nature of economic recovery after the Covid pandemic induced economic crisis. Following are the types of recoveries that graphically resembles the shape of some English letters.
- V-shaped recovery/recession: Here, the economy suffers a sharp but brief period of an economic slump with a trough, followed by a strong recovery. Recession and recoveries will be quick and steep in this case. Hence the V-shaped recovery is the economic recovery after a deep recession. V-shapes are the normal shape for recession and recovery, and the strength of economic recovery is usually related to the severity of the recession.
2. ‘W’ shaped recession/recovery: A W-shaped trend starts with a recession, makes a recovery then and thus completing the V-shaped mode. Again the economy falls into another recession before making a recovery. Hence, the pattern of W is completed that involves the alternative occurrence of recession and recovery. So, two quick recessions and recoveries are there in the case of a ‘W’ shaped recovery. A false recovery is the main feature of the W shaped recovery. Compared to other types of recession, the ‘W’-shaped recession is painful because after the first recovery, investors jump into investment sensing a recovery, and they may suffer losses in the next phase of recession.
3. U shaped recovery: in the case of a ‘U’ shaped recovery, the economy remains in the trough for a considerable period of time (like few quarters). Only after a brief period, the economy registers recovery.
4.‘L’ shaped recovery: In the case of an ‘L’ shaped recovery, the process of recovery will be time taking and slow. Steep recession without a corresponding steep recovery is the feature of the ‘L’ shaped recovery.
- ‘K’ shaped recovery: A K-shaped recovery occurs when different sectors recover with different pace. There may be quick recovery in one sector but continued recession on the downturn in some other sectors. Separate trajectory for the recovery and economic momentum after a recession is indicated by a ‘K’ shaped recovery. Such a possibility has been advocated by several economists in the context of the Covid pandemic. An example is that the financial markets may recover and grow quickly, but the real economy like manufacturing may continue under recession with low output growth. In India, some sectors like agriculture have shown resilience during the pandemic.
There is a high chance that agriculture and labour-intensive sectors are set to become the early runners in recovery. According to the RBI, agriculture and allied activities, FMCG segment; drugs and pharmaceuticals; two-wheelers, passenger vehicles and tractors; and electricity generation are some of the sectors that may go ahead with early recovery. In the next phase, sectors like manufacturing may post-recovery followed by services.