It is “too early” to predict that the UK economy will experience a rapid V-shaped recovery from the coronavirus crisis, according to the chief economist of the International Monetary Fund (IMF).
Gita Gopinath said on Wednesday that most countries will experience a “somewhat prolonged recovery” from the economic effects of the pandemic, warning that initial spikes in activity following the easing of lockdown measures should not be over-interpreted.
Bank of England chief economist Andy Haldane said on Tuesday (30 June) that he believed the UK economy would experience a V-shaped recovery.
“It is early days, but my reading of the evidence is so far, so V,” Haldane said during an online webinar.
Responding to a question about Haldane’s comments from Treasury select committee chair Mel Stride, Gopinath said that she would be “a little hesitant” to describe the potential shape of the recovery.
During a V-shaped recession, an economy suffers a sharp but short-lived period of economic contraction, which is immediately followed by a quick return to pre-crisis levels of growth.
“I think at this point, many things are possible,” Gopinath said, noting that, after initial spurts of activity, advanced economies could see a “much more flat,” rather than V-shaped, recovery,
“What we are seeing in terms of our tracking around the world is that, for many countries, this is going to be somewhat of a prolonged recovery, with countries being below their pre-crisis levels even by the end of 2021,” she said.
Haldane’s prediction of a faster recovery is based on a series of unofficial and untested economic indicators, such as data on credit card transactions, Google searches of key economic and financial terms, and measures of footfall on the high street.
Most official figures have suggested that the UK experienced a historic contraction due to the UK-wide lockdown introduced in response to the coronavirus crisis.
The Office for National Statistics said on Tuesday that UK economic output contracted by 2.2% in the first three months of the year, the largest quarter-on-quarter contraction in gross domestic product in 40 years.
The fall-off in economic activity in the second quarter of the year is expected to be even sharper.
Gopinath said that many economies had nevertheless already experienced the worst of the impact.
“But that's not guaranteed. The strength of the recovery is not guaranteed,” she told the Treasury select committee.
“We would expect to see a spurt of activity initially, but I think all of our projections are for a much more gradual recovery by the end of this year.”
The IMF said last week that it expected the UK economy to contract by 10.2% in 2020 before returning to growth of 6.3% in 2021.
Haldane had suggested that the evidence was that the UK recovery had come “sooner and faster” than any forecasters had predicted, and that it could end up contracting by just 8% in 2020.