Will the world see a V-shaped recovery or an L-shaped one?

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The Trajectory of Global Merchandise Trade Recovery Remains Uncertain

The World Trade Organisation's (WTO) goods trade barometer registered a historic low of 84.5 points in the second quarter of 2020, indicating a significant contraction in global merchandise trade during that period. While some indicators suggest a partial rebound in world trade and output for the third quarter of 2020, the WTO has cautioned that the strength and sustainability of this recovery are highly uncertain. Consequently, an L-shaped recovery, characterised by a prolonged period of stagnation after a sharp decline, cannot be ruled out as a possibility, contrasting with a more optimistic V-shaped trajectory of a rapid return to pre-downturn levels.
Record Low in Goods Trade Barometer

In the second quarter of 2020, the WTO's barometer for goods trade reached an unprecedented low of 84.5 points. This figure serves as a key indicator of the health of global merchandise trade, and its record low value points to a historically severe downturn in trade volumes during that specific timeframe.
Signs of Partial Upticks

Despite the record low, certain economic indicators have begun to signal a partial recovery. For the third quarter of 2020, there were indications of upticks in both overall world trade and economic output. These early signs suggest that the sharp decline observed in the preceding quarter may not continue unabated.
Uncertainty Surrounding Recovery Strength

The WTO has explicitly stated that the robustness of any recovery remains a significant unknown. The organisation has not provided specific figures or forecasts to quantify the expected strength of this rebound. This inherent uncertainty means that predicting the precise shape of the economic recovery is challenging.
Possibility of an L-Shaped Trajectory

Given the prevailing uncertainties, the WTO has highlighted the potential for an L-shaped recovery. In economic terms, an L-shaped recovery implies that after a sharp fall, the economy enters a prolonged period of low growth or stagnation, failing to regain its previous growth trajectory quickly. This contrasts with a V-shaped recovery, which signifies a swift and robust return to pre-crisis levels of economic activity.

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Will the world see a V-shaped recovery or an L-shaped one?

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