A V-shaped recovery or V-shaped recession is a situation when the economy rebounds rapidly to its baseline before recession, and achieves the same rate of growth that was prevalent before the crisis. The economy comes under a steep recession but recovers fast and robustly. Typically, V-shaped recoveries are observed in economic measures like industrial output, unemployement, and GDP charts. Therefore, it leads to GDP growth and increase in job creation.
V-shaped recovery is a type of economic recession and recovery similar to the shape of a ‘V’ in which there is a period of economic decline followed by a short low point and ultimately a rapid revival. As such, it is denoted as a path on a chart that looks like a capital ‘V’ and is, therefore, named as V-shaped recovery.
Economic patterns are described by using various shapes and informal terminologies. Similarly, different periods of recessions followed by recoveries are described by using alphabet, i.e., L, U, J, and W.
The prominent examples of V-shaped recoveries are the recessions of 1920–21 and 1953 in the United States.
Significance of V-shaped Recovery
In a V-shaped recovery, recoveries witnessed after the recession are marked by an important shift in economic activity due to rapid readjustment of consumer demand and business investment spending. A V-shaped recovery is considered as the best recovery after a recession because there is rapid adjustment of the economy and a fast recovery in major macro-economic parameters. It is also one of the most optimistic recovery patterns as it indicates that the downturn did not have a lasting impact on the economy. However, the damage remains for a while; once the economy reaches baseline level of growth, the growth continues at the same rate as before.