V, U, W, L, K - Recession Shapes or Recovery Shapes - Economics

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 V-Shaped Recovery:

In a V-shaped recession, the economy suffers a sharp but brief period of economic decline with a clearly defined trough, followed by a strong recovery. V-shapes are the normal shape for a recession, as the strength of the economic recovery is typically closely related to the severity of the preceding recession.

U-Shaped Recovery:

A U-shaped recession is longer than a V-shaped recession and has a less-clearly defined trough. GDP may shrink for several quarters, and only slowly return to trend growth. Simon Johnson, former chief economist for the International Monetary Fund, says a U-shaped recession is like a bathtub: "You go in. You stay in. The sides are slippery. You know, maybe there's some bumpy stuff in the bottom, but you don't come out of the bathtub for a long time."

W-Shaped Recovery:

In a W-shaped recession (also known as a double-dip recession), the economy falls into recession, recovers with a short period of growth, then falls back into recession before finally recovering, giving a "down up down up" pattern resembling the letter W.

L-Shaped Recovery:

An L-shaped recession or depression occurs when an economy has a severe recession and does not return to trend line growth for many years, if ever. The steep decline, is followed by a flat line makes the shape of an L. This is the most severe of the different shapes of recession. Alternative terms for long periods of underperformance include "depression" and "lost decade"; compare also "malaise".

K-Shaped Recovery:

A K-shaped recession (or two-stage recession), is where parts of society experiences more of a V-shaped recession, while other parts of society experience a slower more protracted L-shaped recession (the shape of the K denoting the divergence in the recovery paths).

The term arose from the economic recovery post the COVID-19 pandemic, where central banks had used exceptional monetary tools to generate asset bubbles that protected the wealthier segments of society (i.e. asset-owning), from the financial effects of the pandemic. K-shaped recoveries are controversial, and the 2020 K-shaped recovery in the United States led to levels of wealth inequality not seen since the 1920s.

Reference:

  1. Wikipedia
  2. Business Standard
  3. Forbes

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