To the growing list of letters of the alphabet used to describe possible economic recoveries must now be added ‘w’. A report by IHS Markit suggests that the recent rebound in new infections in the US and many other countries has reduced the likelihood of a quick rebound — or ‘V’ shaped recovery – which seemed likely in late May and early June. Even a ‘U’ shaped recovery, with a sustained period of suppressed economic activity followed by a rebound, may now be too optimistic. The authors suggest instead that a new round of infections risks causing a second dip in economic growth – most likely at the end of this year or early next year. They put the likelihood of this at 20 per cent.
But if we were to have a ‘w’ shaped recession, what then? With so many jobs being taken out of the economy, so much capacity lost, it is hard to imagine the economy being quickly restored to the size it was at the beginning of 2020. More likely, if we have a double dip recession, is that the economy initially recovers fairly quickly, but then levels off a lower level than it was before the Covid crisis struck. In which case, the way to described the recovery will not be so much a ‘w’ – we are looking more at a London Weekend Television recession.
London Weekend Television will mean little to younger readers, but it was one of the ITV franchises in the 1970s and 1980s – broadcasting in the London areas from Friday evening to Monday morning between 1968 and 1994, when it was taken over by Granada. What is of interest in this context is the logo used during its latter years of existence, when the letters ‘L’, ‘W’ and ‘T’ would be traced out on screen. The effect was a line which fell from a great height, rose upwards, fell again, and then rose to a level much lower than it was at the beginning.
This is the big danger now: that government stimulus packages help get us out of a deep economic hole, but that they are unable to make up the economy’s lost capacity. One of the unknown factors of this recession is what it will do the entrepreneurial spirit. People who start up businesses are generally under little illusion about the risks they are taking. They know full well that recessions are a familiar part of the economic landscape, and that they take out many unprepared businesses, especially those which are over-borrowed.
What they will have been less well-prepared for is a circumstance in which whole sectors of the economy were effectively banned for several weeks. If you were running a restaurant there is very little you could do, other than set up a takeaway service. If you had set up a shop suddenly you’re only option was to sell online. How many entrepreneurs whose businesses failed to make it through these unique circumstances will want to come back and have another go, especially when we will be living under the threat of further lockdowns? Or will many conclude that a quiet life, with a steady public sector job, is as far as their aspirations are going to go?
The key to long term recovery is going to be in the minds of those who were running the lost businesses. How they will react to the experience may not become clear for some time.