After the reccesion of economy caused by Covid19, why do experts expect a ‘U’ shaped recovery rather than a ‘V’ shaped recovery?
In your answer explain the difference between the two types of recoveries.
$Although the virus has delayed the budget until October .. last week the secretary to the Treasury dropped some big hints on what to expect. In evidence to the Senate committee inquiring into the response to the virus, Dr Steven Kennedy started with the outlook for the labour market. The latest figures from the Australian Bureau of Statistics are for the four weeks up to mid-April. In round figures, they show that 900,000 people lost their jobs during the period (although 300,000 gained jobs), 1 million people worked fewer hours and three- quarters of a million kept their jobs but worked no hours (most of them protected by the Jobkeeper wage subsidy scheme). So that's a total of 2.7 million workers - about one worker in five - adversely affected by the snap recession. Total employment fell by 4.6 per cent, but total hours fell by twice that - 9.2 per cent, telling us much of the pain was borne by part- time workers. The rate of under- employment (mainly part-timers working fewer hours than they want to) leapt by almost 5 percentage points to 13.7 per cent. The "good" news is, Kennedy thinks that's most of the collapse in employment we're likely to see. We may get a bit more in the figures for May, and maybe even a fraction more in June. But that should be it. The trick, however, is that though the underlying position won't be getting much worse, we'll see the rate of unemployment shooting up. It had risen by "only" 1 percentage point to 6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June. (And it would have gone a lot higher but for the Jobkeeper scheme.) Such a strange outcome - it's not actually getting much worse, but the unemployment rate is rocketing - is explained by the strange nature of this "corgnacession": a recession caused by the government, acting under doctors' orders. In an ordinary recession, almost all the people who lost their jobs in April would have immediately started looking for a new one, and so met the bureau's tight definition of being unemployed. This time, most people didn't start looking because many potential employers had been ordered to cease trading and, in any case, you and I had been ordered to stay in our homes and rarely come out. As the lockdown is eased, however, people will start actively looking for work, and the bureau will change their status from "not in the labour force" to unemployed, making the figures look a lot worse. On Wednesday, the bureau will publish the "national accounts", showing what happened to real gross domestic product – the change in the economy's production of goods and services - during the March quarter. (Note, GDP fell 0.3% in the March quarter- MS.) Kennedy is expecting real GDP to Page 1 of 2 921 words English (Australia) E Focus 89%$
Transcribed Image Text:Although the virus has delayed the budget until October .. last week the secretary to the Treasury dropped some big hints on what to expect. In evidence to the Senate committee inquiring into the response to the virus, Dr Steven Kennedy started with the outlook for the labour market. The latest figures from the Australian Bureau of Statistics are for the four weeks up to mid-April. In round figures, they show that 900,000 people lost their jobs during the period (although 300,000 gained jobs), 1 million people worked fewer hours and three- quarters of a million kept their jobs but worked no hours (most of them protected by the Jobkeeper wage subsidy scheme). So that's a total of 2.7 million workers - about one worker in five - adversely affected by the snap recession. Total employment fell by 4.6 per cent, but total hours fell by twice that - 9.2 per cent, telling us much of the pain was borne by part- time workers. The rate of under- employment (mainly part-timers working fewer hours than they want to) leapt by almost 5 percentage points to 13.7 per cent. The "good" news is, Kennedy thinks that's most of the collapse in employment we're likely to see. We may get a bit more in the figures for May, and maybe even a fraction more in June. But that should be it. The trick, however, is that though the underlying position won't be getting much worse, we'll see the rate of unemployment shooting up. It had risen by "only" 1 percentage point to 6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June. (And it would have gone a lot higher but for the Jobkeeper scheme.) Such a strange outcome - it's not actually getting much worse, but the unemployment rate is rocketing - is explained by the strange nature of this "corgnacession": a recession caused by the government, acting under doctors' orders. In an ordinary recession, almost all the people who lost their jobs in April would have immediately started looking for a new one, and so met the bureau's tight definition of being unemployed. This time, most people didn't start looking because many potential employers had been ordered to cease trading and, in any case, you and I had been ordered to stay in our homes and rarely come out. As the lockdown is eased, however, people will start actively looking for work, and the bureau will change their status from "not in the labour force" to unemployed, making the figures look a lot worse. On Wednesday, the bureau will publish the "national accounts", showing what happened to real gross domestic product – the change in the economy's production of goods and services - during the March quarter. (Note, GDP fell 0.3% in the March quarter- MS.) Kennedy is expecting real GDP to Page 1 of 2 921 words English (Australia) E Focus 89%
Transcribed Image Text:have fallen a bit, mainly because of the bushfires and the ban on entry to Australia by foreign tourists and overseas students. He's expecting the big fall to come in the June quarter, and for the combined fall since December to be as much as 10 per cent. If it's anything like that big it will be humongous. The total contraction in the last recession, in the early 1990s, was just 1.5 per cent. But, as with the job figures, Kennedy is expecting the contraction in GDP to end with the June quarter. The big question is, what happens after that? With most of the economy reopened - but, of course, our borders still closed to international travel – will most of us be back at work and producing and spending almost as normal? That is, will the period of the economy dropping like a stone be followed by it bouncing back like a rubber ball, producing a graph that looks like a big V? No. Kennedy told the Senate committee "I'm not predicting a V-shaped recovery in any sense, but the way we entered this (downturn], and the nature of this shock, give me some hope that if governments respond well, particularly their fiscal levers (that is, their budgets), we needn't have what's called the L-shaped recovery". That is, economic activity drops a long way, but stays there without growing. Kennedy says the L-shape is probably what people would think of as more like a depression. Kennedy noted that, according to separate figures from the bureau, the number of jobs in the accommodation and food sector fell by more than 25 per cent in just the three weeks to April 4, while jobs in the arts and recreation services sector fell by almost 19 per cent. He drew some hope from the fact that the sectors worst affected by the lockdown are "quite dynamic". "They're sectors that have high turnover in businesses coming and going, quite high turnover in employees and a lot of casuals," he said. So, in the right conditions, they had the potential to re-establish quickly. In contrast, it was hard to re-establish a manufacturing plant quickly. In this strange recession, manufacturing, construction and mining had been allowed to continue without much disruption. If you rule out V-shaped and L-shaped recoveries, what's left is a U-shape. You go down fast but bounce along the bottom before going back up. But our success in suppressing the virus means we've been able to start dismantling the lockdown earlier than the six months initially expected. "So in some ways we're actually a little more optimistic (than we were] – maybe we just squeeze the U together a bit," he said Page 2 of 2 921 words English (Australia) E Focus 89%

Question

After the reccesion of economy caused by Covid19, why do experts expect a ‘U’ shaped recovery rather than a ‘V’ shaped recovery?
In your answer explain the difference between the two types of recoveries.

Although the virus has delayed the budget until October .. last week the secretary to the
Treasury dropped some big hints on what to expect. In evidence to the Senate committee
inquiring into the response to the virus, Dr Steven Kennedy started with the outlook for the
labour market. The latest figures from the Australian Bureau of Statistics are for the four
weeks up to mid-April. In round figures, they show that 900,000 people lost their jobs during
the period (although 300,000 gained jobs), 1 million people worked fewer hours and three-
quarters of a million kept their jobs but worked no hours (most of them protected by the
Jobkeeper wage subsidy scheme). So that's a total of 2.7 million workers - about one worker
in five - adversely affected by the snap recession. Total employment fell by 4.6 per cent, but
total hours fell by twice that - 9.2 per cent, telling us much of the pain was borne by part-
time workers. The rate of under- employment (mainly part-timers working fewer hours than
they want to) leapt by almost 5 percentage points to 13.7 per cent. The "good" news is,
Kennedy thinks that's most of the collapse in employment we're likely to see. We may get a
bit more in the figures for May, and maybe even a fraction more in June. But that should be
it. The trick, however, is that though the underlying position won't be getting much worse,
we'll see the rate of unemployment shooting up. It had risen by "only" 1 percentage point to
6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June.
(And it would have gone a lot higher but for the Jobkeeper scheme.) Such a strange outcome
- it's not actually getting much worse, but the unemployment rate is rocketing - is explained
by the strange nature of this "corgnacession": a recession caused by the government, acting
under doctors' orders. In an ordinary recession, almost all the people who lost their jobs in
April would have immediately started looking for a new one, and so met the bureau's tight
definition of being unemployed. This time, most people didn't start looking because many
potential employers had been ordered to cease trading and, in any case, you and I had been
ordered to stay in our homes and rarely come out. As the lockdown is eased, however,
people will start actively looking for work, and the bureau will change their status from "not
in the labour force" to unemployed, making the figures look a lot worse. On Wednesday, the
bureau will publish the "national accounts", showing what happened to real gross domestic
product – the change in the economy's production of goods and services - during the March
quarter. (Note, GDP fell 0.3% in the March quarter- MS.) Kennedy is expecting real GDP to
Page 1 of 2
921 words
English (Australia)
E Focus
89%

have fallen a bit, mainly because of the bushfires and the ban on entry to Australia by foreign
tourists and overseas students. He's expecting the big fall to come in the June quarter, and
for the combined fall since December to be as much as 10 per cent. If it's anything like that
big it will be humongous. The total contraction in the last recession, in the early 1990s, was
just 1.5 per cent. But, as with the job figures, Kennedy is expecting the contraction in GDP to
end with the June quarter. The big question is, what happens after that? With most of the
economy reopened - but, of course, our borders still closed to international travel – will
most of us be back at work and producing and spending almost as normal? That is, will the
period of the economy dropping like a stone be followed by it bouncing back like a rubber
ball, producing a graph that looks like a big V?
No. Kennedy told the Senate committee "I'm not predicting a V-shaped recovery in any
sense, but the way we entered this (downturn], and the nature of this shock, give me some
hope that if governments respond well, particularly
their fiscal levers (that is, their
budgets), we needn't have what's called the L-shaped recovery".
That is, economic activity drops a long way, but stays there without growing. Kennedy says
the L-shape is probably what people would think of as more like a depression.
Kennedy noted that, according to separate figures from the bureau, the number of jobs in
the accommodation and food sector fell by more than 25 per cent in just the three weeks to
April 4, while jobs in the arts and recreation services sector fell by almost 19 per cent.
He drew some hope from the fact that the sectors worst affected by the lockdown are "quite
dynamic". "They're sectors that have high turnover in businesses coming and going, quite
high turnover in employees and a lot of casuals," he said. So, in the right conditions, they had
the potential to re-establish quickly. In contrast, it was hard to re-establish a manufacturing
plant quickly. In this strange recession, manufacturing, construction and mining had been
allowed to continue without much disruption. If you rule out V-shaped and L-shaped
recoveries, what's left is a U-shape. You go down fast but bounce along the bottom before
going back up. But our success in suppressing the virus means we've been able to start
dismantling the lockdown earlier than the six months initially expected. "So in some ways
we're actually a little more optimistic (than we were] – maybe we just squeeze the U
together a bit," he said
Page 2 of 2
921 words
English (Australia)
E Focus
89%

Accepted Answer

The recession leads to a significant decline in the economic activity, real income, real GDP,…

After the reccesion of economy caused by Covid19, why do experts expect a ‘U’ shaped recovery rather than a ‘V’ shaped recovery? In your answer explain the difference between the two types of recoveries.