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What shape will the recovery be?

Aug 25, 2009

The alphabets U, V and W have been generating a lot of interest globally, especially with relation to what shape the recovery in global economy will take. While there seems to be a consensus across the globe that the worst of the recession is over, there is now a raging debate on how fast the recovery will take. A V-shaped rebound would be the most dramatic, meaning a massive surge in recovery to compensate for the equally accelerated slump in growth across economies. As reported in the Economist, while the optimists argue that a V-shaped recovery seems in order citing past recessions where a recovery was equally strong, the other side of the camp is not as sure as it is of the opinion that it will be a weak recovery or a double-dip W-shaped recession.

There is no doubt that the scale of the global financial bust was huge but what needs to be noted is that the stimulus packages announced by various governments to tackle the slowdown were massive as well.

Therefore the big question really is whether these stimulus measures will only bolster growth and demand in the short term. After all, the problem of unemployment has not really abated and there is still considerable uncertainty as to the timing of withdrawing the stimulus measures.

At least, as far as boosting consumption is concerned, emerging economies seem like a good bet since the consumers of these regions are not as burdened with debt as those in the rich world. But they too have their own set of problems, India being a good example in terms of the huge fiscal deficit that it has amassed. Therefore, only time will tell the course and duration of the recovery in the global economies.

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