V-Shaped Recovery

The term V-Shaped Recovery, depicts a graphical representation of an economy that has been impacted by a dramatic decline in growth. It hits a trough, then experiences a quick, sharp burst of economic growth.

If an economy falls into a recession, the ideal scenario is a quick, sharp turnaround or rebound in economic growth. In Economic jargon this is known as a V-Shaped Recovery, a graphical representation of the data for Growth resembling the Letter V. In forecasting the possible or probable direction of an economy. Economists consider the key Leading Economic Indicators in their analysis. Their analysis will likely include forward-looking growth signals such as Consumer Sentiment, the Purchasing Managers Index (PMI), then Employment indicators such as Jobless Claims, Initial Claims and Continuing Claims and leading Inflation indicators CPI and PPI.

One of the most common causes of a V-Shaped Recession then, Recovery, is likely to be the use of Monetary policy. The finger pointing will go to the Central Bank for being too Heavy-Handed in the raising of Interest Rates. The quick rebound could be due to a rapid adjustment to an Accommodative Monetary Policy. Who gets the credit for the V-Shaped Recovery? If the Central Bank is truly independent, then it will be hard for the Politicians to take credit, but they could try. The Letter V is not the only Letter used to describe how an economy will respond to stimulus measures following a downturn. Other Letters used include the Letters L, W when a Double Dip Recession occurs and the Letter U.