What shape will Australia's recovery be?

Will Australia’s economic recovery be short and sharp? Or will it be protracted, with economic growth remaining sluggish for sometime following COVID-19?

Depends on who you ask.

The source for this discussion is a great article by the economist Jason Murphy titled Coronavirus Australia: What if the economic recovery is not V-shaped?

Let’s start with the optimistic view: the V-shaped recovery. This looks like it sounds: a plunge down, small time at the bottom, and then a quick escalation up. According to the International Monetary Fund (IMF), this is how Australia’s economic recovery will proceed.

V-shaped economic recovery. Source: news.com.au (click through for article)

As Murphy writes: “This is a very bad recession. But at least it is quite short. The assumption the IMF makes is that the economy bounces back when the virus is defeated.”

Okay, but what if the IMF is wrong? 

The pessimistic alternative is an L-shaped recovery. Basically, growth drops (the vertical line of the L), and then we spend a long time along the bottom of the L until growth speeds up. This is a more painful economic recovery as it takes much longer to see a rebound in economic growth rates and employment.

Source: The Conversation (click through for article)

This is how Greg Jericho, The Guardian’s economics writer, describes the L-shaped scenario: “Finally there is the dreaded “L” shape, in which the economy stays weak for even longer – five to 10 years of barely enough growth to keep unemployment flat, but not enough to improve things all that much.”

So what happens next? It’s going to be a wait and see. In terms of Australia, it will depend on the success of re-opening the economy and getting life and business back to normal.