It might seem early, but part of assessing the extent of the damage to GDP requires mapping out when a recovery takes place — and there’s a substantial difference in the shape of models depending on those timelines.A V-shaped recovery sees a steep decline in GDP being met with a rapid bounce off the bottom, whereas the dreaded L-shape spells recession, with GDP failing to return to its pre-crisis levels for years.
Only three weeks ago, a simple letter did work for many economists. When the outbreak was in its initial stages, most were betting on a V-shaped recovery taking place. The optimistic scenario then involved the coronavirus outbreak peaking in April or perhaps May and the economy returning to normal soon after. But as the number of cases continues to balloon and social distancing measures are extended, economists have been forced to readjust on the fly.
“I still think the economy does come back robustly in the second-half of the year assuming social distancing lightens up in the summer,” said Porter, who expects consumer demand will be pent up and unleashed when those measures are lifted. “If we’re wrong on that front, clearly we’re wrong about a recovery as well.”
The combination of the economic shutdown and the global oil price war have led her to be more pessimistic about Canada than most. Her current model foresees a U-shape recovery. The economy is going to experience a deep contraction in the second quarter and only a tiny pop in the third quarter before showing real growth in the fourth.
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