An economy is an amalgamation of everything – jobs, business, wages, currency strength, stock market, and so on. The economy also has its ups and down in each phase and one stage can last considerably longer than the other. However, the shapes of recession and economic recovery can help us gauge where we stand at the moment to make feasible financial decisions.
An economy can contract and then start to expand again without technically entering a recession and if it enters into a recession, then recoveries can follow different patterns.
Let’s take a look at the shapes of recession and economic recovery, and what they mean.
During the pandemic and its second phase, the Indian economy was hit badly. Experts believe that the economy is moving towards a V shape recovery.
V Shape Recession And Economic Recovery
This is the best-case scenario for the economy. It enters a recession and quickly recovers without any complications.
So, a V-shaped recession and economic recovery are all about speed and sharpness.
The recession of 1953 in the United States is an example of a V-shape recession and recovery.
W – Shaped Recession And Economic Recovery
It is alternatively is also known as a double-dip recession. At first, it looks like an economy is undergoing a v shape recovery before it plunges into a second dip. It is often a smaller contraction before full recovery to the pre-recession level.
The market is likely to be more volatile under a W-shaped recovery than any other letter. Investors and traders can be under the illusion that the economy is recovering only to find there is another dip.
U – Shaped Recession And Economic Recovery
It is a more gradual and slow recovery. Under this, the economy remains depressed for a longer period, possibly for several years before growth starts to pick up again.
L – Shaped Recession And Economic Recovery
This is a worst case scenario. The economy continues to remain at its all time low without any possible signs of recovery. The economy will return to its pre-recession levels, however, it could take longer to fully recover.
This can happen if there is a lacklustre investment level, low level of economic growth and a slow revival in employment.
K – Shaped Recession And Economic Recovery
In K shape recession, some areas of the economy recover and get stronger, while the other areas get weaker.
The K shape also suggests that the wealthy are recovering and lower earnings are suffering.
During this pandemic, the profit earnings industries were technology, retail, and software services. On the other hand, the travel, entertainment, food services are somehow suffering yet.
The shapes of recession and economic recovery is not of use for most people. That’s because only small percentage of people pay attention to that. It’s crucial that we understand it, whether you are employed or running your own business.
It is only going to help you make sound and stronger financial assessments to invest better.
When the economy is recovering because recession and recoveries can provide a window of opportunities for investors and traders. Stocks are generally declining during a recession not all but some do. So, it can also be a good time to snap up your stock inventory.