Page 26 - Policy_Economic_Report_September2020

Policy and Economic Report:
Oil & Gas Market

Leading indicators usually help to predict where the economy is headed and hence are especially useful in
strategizing.

Source: IG.com

Types of recession and economic recovery

Since the onset of the COVID-19 crisis, a concoction of “lettered” recession and recoveries have been tossed
around. Over the past couple of weeks, new letters seem to have made the list. Here we analyse all the

possible recoveries that have been mentioned.
I. Z-shaped recovery
Considered to be the most optimistic scenario, this is when an economy quickly rises after an
economic crash. It makes up more than for lost ground before settling back to the normal trend-line,
thus forming a Z-shaped chart.
II. V-shaped recession and economic recovery
A V-shaped recession and economic recovery is characterised by speed and sharpness. While a sharp
contraction in the economy is observed, it also experiences an equally sharp recovery to pre-recession
levels.
The recession of 1953 in the United States is a clear example of a v-shaped recession. a v-shaped
recession. However, the increase of interest rates by the Federal Reserve tipped the economy in to
recession, resulting in growth to slow down and shrinking of the economy by 2.4 percent in the third
quarter. The fourth quarter saw the economy shrink by 6.2 percent, and in the first quarter of 1954 it
shrank by 2 percent before returning to growth. By the fourth quarter of 1954, the economy was
growing at an 8 percent pace, well above the trend.
III. U-shaped recession and economic recovery
In this particular scenario, while an economy is expected to experience a sharp fall into a recession like
the V-shaped scenario, the recovery is a more gradual and slower process as compared to pre-
recession levels. This essentially means to say that the economy remains depressed for a longer
period, possibly for several years, before growth starts to pick up again.

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September 2020