The recovery is not a “V”or a “U” but a “Swoosh”

Economists, business people and other pundits are now predicting how the world economy will recover after this COVID-19 pandemic that has devastated the global economy, and the individual economies of all countries. Some of the least-affected countries are hoping for a sharp and fast restart of their economies, so they want their GDP growth curves to look like a “V” to get back or surpass their previous GDP in a matter of a few months or a year. As of now, most countries have accepted that the recovery of their economy (GDP) will take the shape of a “U”, which means a long recession or depression, and then a gradual but fast upswing after two years. There is another prediction of a “W” shape economic recovery curve, which will happen if there will be a second wave of the pandemic and countries are forced to lock down again to minimize fatalities. This is unlikely to happen, because of the historical behavior of viral infections/contaminations and the hesitance of most governments to impose more lockdowns due to the adverse economic effects.

The magnitude and depth of the economic slowdown which has reduced the world’s GDP by $8 trillion and cut off the income of over 200 million people, which resulted in decreasing aggregate demand and idled as much productive capacity, makes it improbable for any country and the world to have a sharp “V” curve economic recovery. And the world economy is now globalized with supply chains linking all countries, so no nation can escape the global recession. The best option that most governments are hoping is a sharp “U” shape recovery, which means a steep rise in the GDP after a year or two of the recessions. Individual governments and multinational institutions are going to do this by infusing massive financial and physical resources to these countries. The US is pouring $4 trillion for their pandemic health and economic program, and Europe and the rest of the other countries probably another $7 trillion. This is a financial infusion equivalent to 11% of the global GDP in 2019, and the biggest financial pump priming exercise in economic history. The historical precedence of earlier pandemics, depressions, and world wars may be the guide on these government initiatives, and we are hoping that this will play out as expected.

I am of the opinion that the “Swoosh” (the Nike logo) GDP recovery curve will most likely happen after the pandemic and the lockdowns are eased up in most countries. The fat bottom of the Nike curve actually represents the enormous amount of people and productive resources that were dragged down by the recession/depression. Because of this heavy bottom, it will be very difficult for the economy to have a sharp and fast rise, so it will not be a “V” recovery. Even after a year or two, the heavy bottom will still be a heavy load, so a “U” recovery will still be difficult. The only way to rise is to shed or trim down the bottom overload over time and this will give us the “Swoosh” Nike economic recovery curve. A gradual but longer recovery which is less prone to sudden and sharp downturns.

To achieve this Nike curve kind of recovery, it will not mean going back to the usual or normal way that the economies were moving and growing. It will mean restructuring the distribution of economic resources and the utilization of our planet’s natural resources. There has to be a more equitable sharing of the natural and the created wealth in the world. There has to be a narrowing of the income inequality and restraint in the exploitation of natural resources.