In economics a V-shaped recovery is broadly defined by a sharp decline in output, employment or any other metric measuring the health of the economy followed by a quick and sustained recovery. It is different from an L-shaped recovery, in which the economy slumps for a longer period of time or, among others, a W-shaped recovery, which is characterized by, you guessed it, a brief recovery followed by another steep downturn and a second swift recovery.
A V-shaped recovery is what economists are hoping for in the current crisis, brought about by the coronavirus pandemic. Trying to contain the spread of COVID-19, countless countries around the world went on more or less complete lockdown, resulting in a sudden drop of economic activity. Businesses operating in the travel, tourism and leisure sector lost their entire income stream practically overnight as strict social distancing measures were put in place, forcing airlines to ground their fleets, hotels to close doors and restaurants to pivot to takeaway service. But since there is nothing fundamentally wrong with the economy, many are hoping that the recovery will be just as swift as the downturn itself, once the outbreak is under control or a vaccine is found.
The International Monetary Fund backed up such hopes with its latest World Economic Outlook, published on Tuesday. Assuming that “the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound” and that effective policy measure are taken to limit the economic harm done by lockdown measures, the IMF is predicting a V-shaped recovery for the world economy. As the following chart shows, the contraction this year is expected to be severe but the IMF carefully predicts a quick recovery in 2021.