In this BMO Article they examine the four different recovery curves for the economy from a recession. While the article is based mostly on economic data from the States, I believe the concepts would apply here.
They also include a probability for each curve. On the one hand, I like to think that we have done a better job flattening the COVID-19 curve than they have in the States and are more likely to see a V curve (the best outcome). On the other hand, Trump can be reckless and is pushing to lift restrictions to get the economy back on track sooner than later, moving to a V curve, possibly to the detriment of public health. Fortunately, the restrictions are mostly controlled by the State officials.
The timing outlined in the below chart is up for debate, it is too soon to accurately forecast timing and which curve we will experience. Though the concept does demonstrate the different impacts to the economy depending on how long it is artificially shutdown.
Please note, this graph is measuring the level of activity, not the year to year change.
V-Shape (35% chance): Activity bottoms and recovers fairly quickly. The shutdown (pause) on the economy is relatively short (1-2 months) resulting in little long-term damage such as the permanent loss of jobs and businesses. The federal Economic Response Plan aids in lessening the economic impact on people and business, lessening the damage and aiding in a speedy recovery. The economy returns to its long term trend in 9-12 months.
U-Shape (40% chance): Here the shutdown is extended to 2-4 months which causes more longer-term damage to the economy. Thereby slowing the recovery side of the curve. Current government programs may not cover this entire period and may need to be extended or modified. The economy will likely be a little under the trend after 12 months.
W-Shape (20% chance): Similar to the U curve in that the initial shutdown is extended to 2-4 months, with one important difference. The recovery side of the curve is interrupted with a second wave of outbreak in the fall/winter seasons. While the second dip may not be as deep as the first, the result of the longer-term slowdown causes more long-term damage to the economy. After 18 months the economy is still significantly below the trend.
L-Shape (5% chance): The shutdown persists to the end of 2020 causing deeper, longer-term damage to the economy. When health conditions improve next year, the damage to the economy is so severe that recovery is very slow.
The article notes that one curve likely will not fit all sectors. The travel sector will likely experience more of an L curve. A mild secondary outbreak could lead to a W curve for the sports and entertainment sectors. Some must-have sectors are likely to see more of a V curve, such as education, construction, dentists, etc.
The article concludes, that if the shutdown eases in a meaningful way by June it will likely be a V curve base on past recessions over 120 years. This graph is showing the year to year change in GDP (not the level of activity of the previous graph).
As I mentioned in my last newsletter, as did BCREA, this recession is like no other recession in the past. Other recessions were caused by economic and financial factors. This recession was deliberately created due to health concerns for society as a whole. I call it a biological recession. For this reason I believe looking at past recessions may not provide an accurate model. Having said that, the author of this article knows much more about the economy and recessions than I do. It is early days, though there already is talk and movement to easing restrictions here in Canada.