Market Perspective

Market Perspective: Hold On Tight — Economic Recovery Could be Bumpy

April 6, 2020
Ashish Jain

Last week, 6.6 million Americans filed for unemployment benefits — more than double the previous week — signaling staggering economic pain from the coronavirus pandemic.

The unemployment rate for March rose to 4.4% from 3.5% in February, the largest one-month increase in the rate since January 1975, according to The Wall Street Journal. 

Due to the timing of the surveys, the figures don’t fully reveal the millions of jobless claims filed in the last two weeks of March. 

Over the course of the next two months, total job losses could be between 16 million and 20 million, resulting in a 15.6% unemployment rate, according to Bank of America. 

Forecasting firm Oxford Economics projects that by May, the U.S. will have lost 27.9 million jobs. That number is more than double the 8.7 million positions cut from payrolls during the 2007-2009 recession — and those jobs were lost over 25 months

America’s deepest recession on record has dealt a staggering blow to the labor market. But analysts say the world’s economic recovery could be as steep as its drop. 

Inevitably, the economy will recover from this crisis — it’s just a matter of what that recovery looks like. 

The recovery path, which economists say could graphically present itself in the form of alphabetical letters or the logo of a well-known athletic apparel company, depends on several factors. 

As the impact of economic support policies and the effectiveness of virus containment becomes more clear in the coming weeks, the recovery path will become more clear. 

We believe the global economy will transition from deep near-term pain to a gradual recovery over the next 6 to 12 months. The nature of the recovery is to be seen as the restrictions on economic activity will be lifted at a measured pace.

Here are a few scenarios for different recovery paths: 


In this scenario, the economy suffers a sharp but brief period of economic decline with a clearly defined trough, followed by a strong recovery where annual growth rates fully absorb the shock, according to Bloomberg

All previous pandemics have been associated with a “V-shaped” economic recovery, according to a March study from Harvard Business Review

This recovery requires a quick eradication of the coronavirus. However, at this point, there’s no certainty the virus will be gone by the end of the second quarter of 2020. 

A gradual return to working life is more likely than a rush to normalcy. Terms like “social distancing” may stick around far beyond the virus. 

As Americans’ behavior patterns have changed during this crisis, so have their spending habits. Those financial blows may affect the successful reopening of hospitality and leisure businesses. 

Along with financial blows sustained during the downturn, that is likely to dampen spending on travel or spending at shops or restaurants — assuming those businesses can stay afloat in the first place.

Essentially, a lot has to go right for a “V-shaped” recovery. 


In this recovery scenario, the economic shock persists. Although initial growth resumes, there is some permanent loss of output. 

The virus could linger into June and social distancing rules would stay in place longer than expected. There would be an initial period of growth driven by pent-up demand and the government stimulus package. 

However, consumers are not eager to spend because the labor market is still recovering. Not every job lost will be restored and many Americans will use the disposable income they have to repay debts they built up during the pandemic. 

With the U-shape, recovery does not occur until the  end of 2020 or beyond. 


This recovery scenario assumes the spread of COVID-19 extends in the second half of the year and well into early fall. 

Social distancing continues, as well as a lag in consumer spending. Debts build up and are harder to pay off, leading to bankruptcies and defaults. 

The government would need to deliver additional relief. 

The L-shape gets its name from a steep decline followed by a long, flat period. 

If the virus fades and then returns, we could be looking at a W-shaped path. This is presented as a short recovery with a sharp dip back into a recession. 

Tick-Shape or the Nike Swoosh

Businesses slowly open and spending resumes, but economic output remains lower than the pre-crisis trend well into 2021. It’s marked by a steep drop and a slow, but steady recovery. 

This sharp downturn would eventually be met with a higher pre-coronavirus level of GDP. 


Opportunities for innovation are born from crisis. The economy will bounce back by adapting to new behavior pattens and creating new businesses that capitalize on the new normal. 


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