I wrote the following article after our company’s CTO gave us a speech in which he described how US might get into double-dip recession. I realised that most people would not know what our CTO was talking about.
Recessions are classified as U,V,W or L shaped based on the way the graph of growth rates look during this time. These are not formal terminologies but are used by all in an informal way.
V- shaped Recession
In this kind of recession, the economy experiences sharp, but brief periods of low economic growth before returning to its high-growth path. This kind of recession usually occurs in strong economies where growth rates may not be negative even when the economy is in “recession”. India would be prime example of this where the economy continued to grow at about 6% during 2009 recession. A typical graph of a V-shaped recession is given below –
U-Shaped recession
U-Shaped recessions lasts longer and the bottom of the recession is less clearly defined. Usually, the economy stays in the low growth mode for several quarters( usually about 2 years or 8-10 quarters) before returning to high-growth paths.
W – Shaped recession
A W-shaped recession is also called double dip recession. This occurs when the economy has a recession, comes out of the recession and has brief periods of growth before slipping back into recession. This kind of recession is very dangerous as over-optimistic companies tend to overspend during the brief period of growth expecting it to continue and land in a debt-trap when the economy slips back.
L-shaped recession
L shaped recession occurs when an economy experiences a sharp drop in growth followed by many years of low or non-existent growth. Due to the long and painful nature of the recession it is also called “Bloody L”. Japan is a good example of this. The country’s economy has not been growing consistently since 1990s
8 months after writing this post, people are still wondering and worrying that US of A might go into a W-shaped or double dip recession.
Management Concepts & Book Summaries 