V U Z W L recoveries and the inverted square root

Usually we talk about U V W or L recoveries but with the impact of Covid-19 there has been much mention of an inverted square root (as mentioned by George Soros in video below) in some countries as an economy tries to gain some semblance of pre-covid normality. Below is an image from the Wall Street Journal that describes each of the following recoveries: – V U Swoosh Z W L.

Probably the inverted square root sign illustrates the most likely scenario today, with some recovery of the lost GDP but not a return to the previous trajectory. This represents a surge in demand after the relaxing of restrictions but it doesn’t last and starts to plateau after a period of time. For a lot of countries a second wave of Covid-19 has meant a return to lockdown and a further dampening of demand with the economy unable to compensate for people in bars / restaurants / sports events etc. Furthermore the fear of physical proximity will keep the recovery of services subdued.

Although from 2011 the video below from the PBS Newshour shows reporter Paul Solman and Simon Johnson – former IMF economist and now at MIT. Johnson explains the different types of recoveries – L U V W shapes. Note George Soros and the inverted square root sign.

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