What is a U-Shaped Recovery?

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.

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How does a U-Shaped Recovery Work?

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.