Reader Poll: Shape of the Economic Recovery
August 10, 2009 by Miranda Marquit
Filed under Finance
Today, Blue Chip Economic Indicators published the results of a survey conducted amongst economists. The result is that 2/3 of them feel that we will see a U-shaped economic recovery. We have heard recent speculations about the shape the economic recovery will take, and there are three main contenders right now: U, V, 
and W.
U-Shaped Economic Recovery
A U-shaped economic recovery is one that sees a drop, and then a subdued time period where things stop getting worse, and make small improvements. This subdued period is followed by a period of solid growth. In the case of the Blue Chip survey, economists feel that we are approaching the bottom of the U, and that the year 2010 will see the bottom, where things stabilize and start to make small improvements. After 2010, we will then see strong growth.
V-Shaped Recovery
In a V-shaped recovery, the bottom is very short. The economy hits bottom and then rebounds very quickly. Recessions of the recent past (probably helped by interest rate policy and economic stimulus) have followed this type of recovery. However, this time, the built up effects of preceding recessions and unsustainable monetary policy will, in my opinion — and I’m not an economist — mean that a V-shaped recovery is not very likely. Only the most optimistic of economists (1/6 of those in the survey) feel that this is a likely scenario.
W-Shaped Recovery
As you can see from the shape of a W, such a recovery would be marked by a small rebound from the bottom, then another drop, and then, finally, a recovery in earnest. 1/6 of the Blue Chip survey respondents pessimistically believe that we still have another sharp drop ahead after some degree of recovery.
What do you think is the most likely scenario? Vote in the poll below, and leave your thoughts in the comments.
Image source: Leo Reynolds via Flickr
While I think the U-shaped recovery seems to make the most sense and is probably the optimist’s choice (I think it’s probably clear that we’ve passed the point of a V-shaped recovery?), something tells me it’s going to be a W. I don’t think we’ll drop as low as DOW 6700 again, not at all, but I do think there will still be a significant DOW correction to the recent runups. To me this seems to be the realistic option.
The economy will start to recover in earnest when the government stops trying to artificially stimulate it and stops sucking capital out of the market place that could and should be used for private investment.
You are probably right. The V-shaped argument is that we’ve just reached the bottom, and now it’s time to rocket up. I think that we will likely see either a messy looking U (with an irregular bottom) or a W. But I do think the worst of THIS recession has passed.