Give me a W, V, and a K: describing the post-COVID economic outlook - Metro US

Give me a W, V, and a K: describing the post-COVID economic outlook

People wearing protective face masks walk past office buildings in Lujiazui financial district in Pudong, in Shanghai

LONDON (Reuters) – What appeared to be a sharp V-shaped growth rebound from the first pandemic lockdown, now seems like a “W” — these are among the myriad of letters and signs economists are using to describe the outlook for a world turned upside down by COVID-19.

Global coronavirus cases now exceed 50 million but encouraging news on Pfizer’s experimental vaccine could be a game-changer for world growth. Here are some shapes being used to describe the outlook during extraordinary times.

1. “W”

A growth double-dip is viewed as the likely scenario for major economies such as the United States and Europe, many of which are facing another coronavirus wave and activity curbs. That trajectory is captured by a “W”, largely replacing the “U” shaped rebound projected by some earlier this year.

For instance, a euro zone Q3 economic bounce caused by economies reopening from the first set of lockdowns, is expected to turn into another contraction in the fourth quarter.

But the second leg of the double-dip should be shallower than the first because restrictions are less harsh, while consumers and firms are better prepared.

For an interactive version of the graphic, click here https://tmsnrt.rs/35lc0VJ.

2. “V”

If a vaccine is rolled out sooner than expected, forecasts for a V-shaped economic rebound could make a comeback.

And a “V” trajectory remains the base case for Asia, which has not been hit as hard by a coronavirus second wave.

China will be the only major economy to expand this year, according to the International Monetary Fund, which expects 1.9% growth in 2020 and 8.2% in 2021.

For an interactive version of the graphic, click here https://tmsnrt.rs/3k8nzUo.

3. Square root “√”

The mathematical square root sign conveys a dip, followed by a recovery, which then flatlines. More bullish than the double-dip W-shape, but less bullish than a V, the square root is meant to illustrate that while renewed lockdowns will limit growth they won’t necessarily result in a further growth decline.

“We’ve been trying to go with more the square root, or in golfing there’s a term called the ‘dogleg’ which seems appropriate – which is more that it goes down, and then up, and then tapers off,” said Wells Fargo Asset Management senior investment strategist Brian Jacobsen.

(GRAPHIC: Square root shape recovery for UK: https://fingfx.thomsonreuters.com/gfx/mkt/qmypmxoxzvr/Pasted%20image%201605197122606.png)

4. Greek “μ”

If euro zone growth contracts less severely than feared, the path could take the shape of the Greek letter “μ” — an outlook that is slightly less harsh than the double dip captured by a “W”.

The economy expanded 12.7% in the July-September period, after contracting 11.8% in the previous quarter. This bigger-than-anticipated bounce should lift average 2020 and 2021 growth, blurring the impact of any fourth-quarter contraction.

Gilles Moec, chief economist at Axa Investment Managers, expects a 4-5% shock to Q4 zone GDP, bringing this year’s overall decline to around 8%.

“But it would still be a very special form of “W” trajectory, since the second leg would be significantly shallower than the first one,” Moec said. “The best analogy we would find is with the Greek letter μ.”

(GRAPHIC: Euro area GDP in a ‘μ’ shape: https://fingfx.thomsonreuters.com/gfx/mkt/jznvnnerlvl/Pasted%20image%201605109458894.png)

5. “K”

Another shape under consideration is “K” in which sectors take divergent paths. In this scenario, some businesses such as manufacturing bounce back sharply as restrictions ease, while others such as services sector firms struggle until a vaccine is rolled out.

“I increasingly like this to describe the outlook… it means there will be sectors that thrive from the lockdown and those that are under pressure for instance travel, leisure, and aviation,” said Carsten Brzeski, global head of macro for ING Research.

(GRAPHIC: K-shaped recovery: https://fingfx.thomsonreuters.com/gfx/mkt/azgvozmgypd/Pasted%20image%201605111121616.png)

(Reporting by Dhara Ranasinghe and Elizabeth Howcroft; Graphics by Ritvik Carvalho; Editing by Sujata Rao and Toby Chopra)

More from our Sister Sites