What shape will the recovery take? A gloomy U with a long, flat bottom of weak growth is the likeliest shape of the next few years.
Yet a rebound based on stock adjustments is necessarily temporary, and one based on government stimulus alone will not last. Beyond those two factors there is little reason for cheer. America’s housing market may yet lurch down again as foreclosures rise, high unemployment takes its toll and a temporary home-buyers’ tax-credit ends (see article). Even if housing stabilises, consumer spending will stay weak as households pay down debt. In America and other post-bubble economies, a real V-shaped bounce seems fanciful.
SHOOT: I see a very weak and wide open U with some small 'w' spikes that will turn out to be sucker's rallies. Overall trends, based on fundamentals - downward.
Pessimists, meanwhile, think this downturn’s origins favour a weak recovery or a double-dip. Unlike typical post-war recessions this slump was spawned by a financial bust, not high interest rates, and when overindebted borrowers need to rebuild their balance-sheets and financial systems need repair, growth can be weak and easily derailed for years. Japan’s 1990s banking crisis left the economy stagnant for a decade; a premature tax increase in 1997 plunged it back into recession.