The COVID-19 outbreak has devastated what was already an ailing economy. Here, we take a look at what India's growth curve could come to look like as the economy enters the post-COVID-19 era.
- Under a V-shaped recovery scenario, economic output experiences a sharp drop, but then rebounds almost immediately, climbing out of economic malaise nearly as quickly as it fell
- In a U-shaped recovery scenario, once production falls to a certain amount, the economy spends some time in a slump before gradually entering a growth phase
- A K-shaped recovery, effectively, means that the already large inequality within the country will grow even larger, with the higher income classes accumulating the substantial chunk of the benefits
The COVID-19 outbreak has devastated the global economy. With the exception of China – where the virus originated from – nearly every country is, effectively, in a recession. Latest figures indicating an economic contraction of almost a quarter during the April to June period, coupled with the rising incidence of COVID-19 in the country, have now led ratings agencies to revise their growth projections, with some even forecasting a yearly contraction of around 14 per cent.
Nevertheless, an economic recovery will almost certainly arrive, even if it does take much longer than even the most cynical economists anticipate. Here we take a look at some different recovery scenarios and what they mean,
A Z-shaped recovery would easily be the best case scenario. Such a scenario means that despite the lockdown slowing down business activity, and forcing people to remain indoors instead of going out and purchasing goods and services, employers managed to retain their workers while continuing to remunerate them as well.
Following the containment of the virus, the economy benefitted from the release of 'pent-up' demand that makes up for the months of slowdown. Essentially, a Z-shaped recovery describes a situation where a recession is followed by a phase of exuberance. Unfortuantely, it doesn't look like this is going to manifest in India's future.
This scenario appears more realistic, and is also what many economists hope will take place. Under this scenario, economic output experiences a sharp drop, but then rebounds almost immediately, climbing out of economic malaise nearly as quickly as it fell. However, it differs from Z-shaped recovery in that output only rises as much as it had fallen with the economy stabilising at pre-COVID-19 levels. Canada, for instance, experienced a V-shaped recovery following the 2008 financial crisis.
A U-shaped recovery is what the United States experienced following the 2008 financial crisis. In such a scenario, once production falls to a certain amount, the economy spends some time in a slump before gradually entering a growth phase.
Compared to a V-shaped recovery, the increased time that the economy remains in a malaise for leads to an increased loss of output. However, over a period of months, it eventually limps back to pre-recession output levels. Such a scenario can cause serious damage to labour supply and productivity.
A SWOOSH recovery
A SWOOSH is, effectively, a cross between a V-shaped recovery and a U-shaped recovery. In this scenario, the relaxations and unwinding of restrictions on business activity and mobility will initially lead to an immediate uptick in output resembling that of a V-shaped recovery, but then begins to slow down, with the economy taking time to gather the momentum it had prior to the outbreak, indicating consumer caution over spending.
A K-shaped recovery is one where a rising tide (a recovery) will not arrive for everyone in an economy. What this, effectively, means is that the already large inequality within the country will grow even larger, with the higher income classes accumulating the substantial chunk of the benefits, while those at the bottom rungs of the economy continue to suffer. This currently appears to be what is happening with the stock market remaining bullish despite the dire economic ground realities. If large sections of the population grow poorer in the post-COVID-19 world, this could severely dent the long-term growth prospects of the economy.
In such a scenario, an immediate economic rebound is followed by another sudden fall in output, potentially arising from a resurgence of the virus that causes state governments to re-introduce lockdown and containment measures at the cost of business activity