Alphabet shape guide to economic recoveries

Posted By Darren Winters on Sep 17, 2020


Alphabet shape guide to economic recoveries

So, what is the alphabet shape guide to economic recoveries?

It is a question worth pondering, bearing in mind that we could be in the final half of the COVID-19 pandemic, undoubtedly the worst health crisis of the century.

The current state of play, regarding the pandemic, is leading me to be cautiously optimistic, bearing in mind that pharmaceutical companies are developing vaccines, health experts are gaining a better understanding of how to treat the disease, and the young population, those with robust immune systems could have already achieved herd immunity.

In this mid-pandemic era, it might be prudent to zero in on the alphabet shape guide to economic recoveries

Alphabet shape guide to economic recoveries

Think tank, The Conference Board did just that by surveying hundreds of CEO’s to reveal what the captains of big business think the economic recovery could look like, which I will revisit later.  

But let me set the stage. 

CEOs are also in the business of managing investors’ expectations, so in a crisis, they are likely to be more pessimistic. Moreover, corporate welfare is big business so the CEOs are likely to overplay the crisis, to maximize government support. Remember the last crisis in 2008 when auto CEOs were flying to Washington in their private jets with their begging bowls lobbying the government for aid.

Another factor in the equation to the alphabet shape guide to economic recoveries, through the eyes of CEOs, worth considering is that we are mid-pandemic during a fourth industrial revolution

So, the captains at the helm realize that to compete in a competitive market, to maximize profit and shareholder value they must deploy cost saving technologies, automize, digitalize, and streamline headcounts. So, the pandemic could also be used to justify corporate redundancies.

Laying off hundreds of thousands of employees due to the pandemic is politically more acceptable than laying off those workers due to automation.

With that in mind, what is the alphabet shape guide, the four distinct shapes—L, U, W, and V, to economic recoveries?

The L-shape

In this scenario, the economy experiences a sharp decline followed by a slow recovery period. 

It’s often punctuated by persistent unemployment, taking several years to recoup back to previous levels.

The U-shape

This is often referred to as the “Nike Swoosh” recovery where the economy stagnates for a few quarters and up to two years, before experiencing a relatively healthy rise back to its previous peak. 

W-shape

In this scenario, the economy recovers only to fall back into a recession and then finally enters the full recovery period of up to two years. This is also known as a “double-dip recession“, similar to what was seen in the early 1980s. 

V-shape

The most optimistic type of economic recovery is V-shaped recovery, where the economy declines sharply then there is an immediate rapid recovery. The economy returns to peak spending in less than a year, bolstered by economic measures and strong consumer spending. 

Applying the alphabet shape guide to economic recoveries what do the CEOs think the future economic recovery shape will look like?

A total of 600 CEOs were surveyed with 42% CEOs believing that there will be a U-shaped recovery, according to think tank The Conference Board. 

Over half of European CEOs (55%) project a U-shaped recovery. So. CEOs are moderately optimistic.

But the central banks’ pandemic response also implies that the central banks are still sitting in the cockpit of where stocks go next. 

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