Articles in the press often talked about how will a recession be like. Often, they will tend to use shapes such as a V-shaped, U-shaped and a L-shaped recession to describe it. But what do these shapes actually mean ?
A V-shaped recession is one which goes down in a steep way rapidly and recovers at an equally fast pace. The start of this type of recession is mainly due to the influx of some disastrous news and this contributes to the start of the plunge. Once fear and panic subsides, the recovery will take place quickly due to the sound fundamentals of the economy. This will happen after the market realize that the effects of the news that contributed to the plunge is over. Some of the examples of a V-shaped recession includes the 9/11 terrorist attacks in US and the SARS attack in Asia which affected Singapore.
A U-shaped recession is one that goes down at a slower rate and recovers at a slow pace too. This type of recession can last for several years. The start of this recession is also due to the influx of disastrous news. However, the news associated with this kind of recession tend to have some basis behind them. Most of the reasons are due to a poor forecasted economic outlook such as a high rate of inflation, falling exports, increasing unemployment rate and etc. Gradually, the economy will recover due to actions being taken by the government but it will be at a slower pace since this recession is caused by problems in the economy. One example of a U-shaped recession occurs in the 70s in the US.
A L-shaped recession is one that goes down and stays at that level for a long time. The cause of this recession is similar to that of the U-shaped recession i.e. poor economy outlook. However, this recession may take a very long time to recover and the reason behind this can be due to wrong or slow actions taken by the government to correct the recession. One such example would be the recession in Japan which started in the 90s. Even at this point of time, Japan has never really recovered fully from this recession.
Monday, November 24
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