At times like these it can be useful to consider some of the lessons of the past. With that in mind, we took a step back to try understand how previous downturns have played out.
Analysis of over 200 recessions across a number of countries dating back to 1900 suggests that deep recessions are not that uncommon and they tend to be followed by fairly rapid recoveries. Plotting the relationship between the severity and duration of recessions – the third chart above – shows that a ‘V’-shaped projection for the US economy does not look unusual.
Of course, every recession is different and caused by different factors, but many of these short-lived recessions are generated by large supply shocks that have relatively short-lived consequences. The chart also suggests there is a high degree of uncertainty however, so while this analysis has contributed to our decision to increase the probability we attach to a ‘V’-shaped recovery, we still recognise that other outcomes remain possible too.
Shamik Dhar, chief economist, BNY Mellon Investment Management.