Banks and economists are predicting a recession caused by the Covid-19 pandemic (or more accurately caused by Government-imposed economic lock-downs). In fact, some say we’re already in a recession. The one good news is that this recession is likely to be v-shaped and we should see a rapid recovery.
“The worst global recession since World War II”
JP Morgan, March 2020
A recession is characterised by a significant decline in economic activity across the economy – visible from economic metrics such as GDP, income, employment, industrial production, and wholesale-retail sales. In the US, a recession is determined by a central authority, the National Bureau of Economic Research (NBER). In most countries however, a recession is automatically defined when you observe two consecutive quarters of falling GDP.
So even though we’ll officially know of a recession months later, we are most likely already in a recession.
“The US economy has fallen into recession”
Bank of America, March 2020
The pattern of pandemic-based recessions is that they tend to be short-lived. Recovery is quick and follows a v-shaped pattern. Businesses and marketers should therefore take heart.
The reason for this is that pandemic-based recessions are caused by factors which are external to the economy (what economists call exogenous shocks). Whereas most recessions are caused by problems from within the economy (such as an overheated economy associated with the Lawson Boom in the early 1990s recession, or a excess build up of risk in the subprime mortgage sector in the Great Recession of 2007-2009). This means that as soon as the exogenous shock is withdrawn, we should expect the economy to bounce back quickly.