U-Shaped Recovery - Definition
Written by Jason Gordon
Updated at December 19th, 2020
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U-Shaped Recovery Definition
A U-Shaped Recovery is a chart used in depicting recession and recovery in an economy. It occurs when an economy undergoes a sharp decline in terms of GDP growth, employment rate and other factors of the economy before the economy recovers and returns to its previous level. When this recession and recovery occurs, a U shape is formed giving rise to the term, U-Shaped Recovery. Since there was no point of convergence, an uneven bottom is formed and not a meeting point, forming a U-shaped recovery.
A Little More on What is a U-Shaped Recovery
There are some factors that determine the economic growth of a nation, they are also called metrics for measuring the growth of the economy. These are GDP, industrial output, employment, and others. When there is a gradual decline in the growth of the economy before the economy starts to recover gradually, a U shape is formed. In 2009, a renowned economist at IMF, Simon Johnson explained the U-shaped recovery economy as a bathtub.
Common Recession Shapes
Since there are various recession and recovery patterns, different shapes are used to describe then, aside from the U-shaped recovery, other shapes of economic recession and recovery exists. L-shaped, V-shaped, and W-shaped, are other economy recovery charts that exist. A V-shaped recession is formed when there is a sharp economic decline followed by a prompt recover. In this case, the economy recovers from recession as quickly as possible. A W-shaped recession, on the other hand, is formed when there is an economic decline followed by a recovery which is short-lived. The recovery is followed by another recession before another recovery that will last longer occurs. There are two recessions and recoveries in this chart. When there is recession in an economy and it fails to recover, a L-shaped recession is formed.
Examples of U-Shaped Recessions
The most common U-shaped recessions occurred between 1973- 1975 and 1981 -1982. Also, in the United States, the U-shaped recession occurred in economic chart as far back as 1945. The 1973-1975 economic recession in the United States was one in which the economy began to shrink notably and gradually but later began to recover gradually two years later. When there was an economic recession, the GDP reduced so as did employment rate and industrial output. Once the economy begins to recover, these factors increased as well.
References for U-Shaped Recovery
- https://www.investopedia.com Investing Markets Stock Markets
- https://en.wikipedia.org/wiki/Recession_shapes
- https://marketbusinessnews.com/financial-glossary/u-shaped-recovery/
Academic research for U-Shaped Recovery
Recovery from a currency crisis: some stylized facts, Hong, K., & Tornell, A. (2005). Recovery from a currency crisis: some stylized facts. Journal of Development Economics, 76(1), 71-96. On economic theory and recovery of the financial crisis, Yao, S., & Zhang, J. (2011). On economic theory and recovery of the financial crisis. The World Economy, 34(5), 764-777. Are recoveries all the same: GDP and TFP?, Huang, Y. F., Luo, S., & Startz, R. (2016). Are recoveries all the same: GDP and TFP?. Perspectives on the US Economy: Fiscal Policy Issues, Taylor, J. B. (2010). Perspectives on the US Economy: Fiscal Policy Issues. Testimony Before the Committee on the Budget, US House of Representatives. The Asian turmoil: how much of a banking crisis?[Notes for address to Australian Institute of Banking and Finance, 25 June 1998, Sydney], Payne, I. K. (1998). The Asian turmoil: how much of a banking crisis?[Notes for address to Australian Institute of Banking and Finance, 25 June 1998, Sydney]. The Australian Banker: Journal of the Australian Institute of Bankers, 112(5), 174. U-Shaped Recovery Expected for Korean Economy, Jaechul, C. (2009). U-Shaped Recovery Expected for Korean Economy. SERI Quarterly, 2(3), 95. Asia's Recovery: From L to U to V, Smith, S. (2010). Asia's Recovery: From L to U to V. InFinance: The Magazine for Finsia Members, (2), 16. Asia's recovery: from L to U to V, Darby, S. (2010). Asia's recovery: from L to U to V. InFinance, 124(2), 16.