The classic post-war, V-shaped recession occurred in 1957-58. Its peak to trough annualized quarterly decline in real GDP -3.6%, compared to -4.0% for the Great Recession 2007-09. In contrast peak to trough decline during 1973-75 was -3.1% and 1981-82 -2.6%. A key reason why the contraction of 1957-58 is not remembered among the most costly is that after the quarter containing the NBER trough month (April), real GDP grew at an astonishing average of 9.1% in the next four quarters. So the actual real GDP path returned to potential GDP so quickly that a large loss in out was prevented. This helps explain why the unemployment rate peaked at 7.5% in 1958. During the 1973-75, 1981-2 and 2007-09 unemployment peaked at between 9 and 10.8% However during the last three recessions, which ranged from mild to severe, output was notoriously slow in returning to potential. So what will happen in 2020-2021? Will there be a sharp rebound after a horrific trough in the 2nd or 3rd quarter, or will the return to potential be agonizingly slow? Will the "Great Recession "be followed by a V-shaped contraction that is a deeper version of 1957-58 but with a sharp rebound or a longer-lingering Little Depression?
We are gazing into a crystal ball here, so that comes with its own health warning!
FWIW IMHO while GDP may recover on the strength of private sector's innate motivation to survive and profit, the larger risk to a recovery is the cost of the government stimulus package which will, most likely, curtail government spending and increase taxes. With government spending curtailed to pay down the stimulus debt, most sub-sectors of the private sector, including most obviously those in construction and consultancy sub-sectors, will lose a large customer base. Which in turn increases unemployment and hence the burden on state social security.
So any attempt at a V-shaped recovery by private sector players, regardless of how motivated they are, is likely to be short lived.
Paul: I think the economic recovery will be extremely slow following the current Recession in 2020. I say this because of the COVID-19 pandemic, which will require a vaccine and/or cure before the economy can fully open up.
Many economies are shut down right now due to the COVID-19 spread. Government officials are hesitant to open the economy back up because it could cause the virus to spread more.
Most experts say a vaccine won't be available until Spring 2021, at the earliest. Even if this occurs, it will take time for a vaccine to be produced and distributed to so many people in the world.
Additionally, as the economy is shut down and some companies go bankrupt or close, the number of unemployed people is going to increase significantly. This will greatly reduce household spending, which will slow down the economic recovery even more. It will turn into a vicious circle: Economy shut down, sales down, laid off workers, less household spending, repeat, repeat, repeat, etc.
- Badges
- Science topic
- Similar topics
- Econ
- Manufacturing
- Industry