COVID-19 has had an unrivaled effect on the economy of the world and the United States of America. While many countries are trying to reopen the businesses that drive their financing, nobody is out of the woods yet. And yet, we try to predict what the economy will do next year because it affects what we can plan for this year.
According to Forbes, economists and other financial experts like to use letter shapes to describe how our economy responds to any recovery. Such measures usually track the GDP (Gross Domestic Product), which represents the total monetary value of goods and services produced within the US.
To imagine the letter shape, assume a constantly rising line on a graph with a piece taken out of the middle. The letter drawn under that line joining the separate forms describes the state of the recovery.
What does a V Shape mean?
The economy quickly drops until it hits the lowest point of the V and then rebounds quickly. This scenario represents the most optimistic outlook because it assumes the crisis does not permanently damage the economy.
How wicked is the U Form?
The economy is damaged over a long period before it reaches the bottom of the U, where it may remain for a time. It then slowly rises as the damage passes.
What does the W do for us?
Also known as a double-dip, the W shape shows a quick drop followed by a hopeful rise from the bottom. However, before the economy can fully recover, it drops again before rising to full recovery. This shape assumes just two dips and two rises when, in fact, multiple Ws may succeed each other before the final climb.
What’s a Swoosh?
If you look at the Nike Swoosh logo, you’ll notice a steep drop, a sudden rise, and then a gradual return to economic recovery, which takes longer than the actual time to the bottom. Some analysts see this type of recovery happening if the labor market does not return to pre-crisis levels as quickly as it collapsed.
What about the L?
This most pessimistic of the shapes show a drop that hits bottom but never recovers to the pre-crisis economy. Instead, the economy stagnates, and unemployment persists, which is displayed by the bottom part of the L.
How will the Economy Recover in 2021?
One of the issues hindering accurate predictions of 2021 is that we have never quite faced a situation like this since we started formalizing recovery shapes. The course of this pandemic has been unpredictable, with countries seemingly succeeding in controlling the spread of COVID-19, only to see a resurgence when such controls are relaxed.
Nevertheless, experts like Beacon Economics see the US achieving a strong recovery at the end of 2020, leading to a full recovery in 2021, which is the U shape. According to 600 CEOs surveyed by the think tank Conference Board, economic recovery will most likely follow the U shape. Both of these forecasts contrast with the prediction by the US Congressional Budget Office that sees a full recovery only after a decade.