V, W or L: What shape would the recovery take?

ALTHOUGH a rapid V-shaped recovery is our central forecast, there is a risk of a "double-dip" recession if Covid-19 lingers.

The world economy is in the midst of a sudden stop where activity has been brought to a halt by official action to suppress the coronavirus. On our forecast, the contraction in global activity in 2020 of 3 per cent will exceed that seen in the first year of the Global Financial Crisis (GFC) when global GDP contracted by 0.5 per cent. However, unlike the GFC, we do see a relatively rapid bounce back.

Rather than an L-shaped recovery, we forecast this time's recovery to follow a V-shape path this time, with the US returning to its previous level of activity in the third quarter of this year. Such an outcome reflects expectations of the lifting of restrictions on movement and the return to work as business restarts, shops re-open and normal activity resumes.