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Coronavirus: What is a V-shaped economic recovery?

Edmund Heaphy
·Finance and news reporter
·2-min read

We already know that the UK economy, like that of pretty much every country that went into a coronavirus lockdown, shrunk sharply in the first half of this year.

In May, the country's economic output — also known as gross domestic product, or GDP — was almost 25% smaller than it was in February, before the crisis.

To give you an idea of how big a drop that is: This means that the UK economy is the same size that it was in 2002. In a sense, the coronavirus crisis has erased around 18 years of economic growth.

But as the UK continues to ease its coronavirus restrictions, economists are trying to figure out when exactly the economy will get back to the size it was in February. In other words: how long will the recovery take?

READ MORE: UK economy shrinks by one-fifth under coronavirus lockdown

There’s been a lot of talk about a rapid, or V-shaped, recovery, which would be the best possible outcome: Yes, the UK has suffered a really sharp and sudden drop in economic output, but in a V-shaped recovery, the economy would quickly bounce back to its prior levels.

In this scenario, a chart of economic output in the UK would look like a V, because the rebound would take the same length of time as the collapse in activity.

Economists are pretty uncertain about the shape of the recovery, but many think this is unlikely. Lots of people have lost their jobs, and many businesses have closed permanently.

Economists call this “scarring” — because this economic output has been permanently lost.

In other words, you usually cannot turn the economy back on like a light switch. Nevertheless, we might soon see a sharp return to growth.

READ MORE: UK faces worst economic downturn in 300 years

The chief economist of the Bank of England, Andy Haldane, has pointed to several untested economic indicators, such as data on credit card transactions, Google searches, and measures of footfall on the high street, to suggest that the UK recovery has come “sooner and faster” than any forecasters had predicted.

But we shouldn’t call it a V-shaped recovery unless the economy gets back to its February size pretty quickly.

And the latest data from the Office for National Statistics suggests that the UK economy is experiencing a slower-than-expected recovery from the depths of the crisis. In May, economic output grew by just 1.8%, well below analyst forecasts of 5.5%.

According to the Office for Budget Responsibility, while economic output is expected to rebound by 8.7% in 2021, it will remain below where it was prior to the pandemic for at least the next five years.