Thursday, September 10, 2009


Over the last 12-15 months we have been hearing about the dreaded term RECESSION quite a few times. Even though India has not been directly effected primarily due to India's purchasing power, this has not been the same case with developed economies like Japan, USA and most of Europe.

Given below are few explanations of the different types of Recession which the economy can face:-

  • "L" shaped Recession

A L-shaped recession describes a recession that falls quickly and fails to recover. An L-shaped recession is a worst-case scenario because they offer no hope of recovery. The Japanese recession that began in the early 1990s is considered an L-shaped recession.

  • "U" shaped Recession
A U-shaped recessions begins with a slightly slower decline but then remain at the bottom for an extended period of time before turning around and moving higher again. The recession from 1971 through 1978---when both unemployment and inflation were high for years---is considered a U-shaped recession.

  • "V" shaped Recession
A V-Shaped economic recession describes the shape of the market's performance. It begins with a steep fall but then quickly find a bottom, turn back around and move immediately higher. It is used to measure employment, GDP and industrial output. Many economists use the V-Shape to forecast and analyze a country's health. A V-shaped recession is always mentioned as the best-case scenario. The recession of 1990 to 1991 and the recession of 2001---both of which only lasted eight months---are considered to be V-shaped recessions.

  • "W" shaped Recession

A W-shaped recession begins like a V-shaped recession but then ends up turning back down again after showing false signs of recovery. W-shaped recessions are also called "double-dip recessions" because the economy drops twice before a full recovery is achieved. A W-shaped recession is painful because many investors who jump back into the markets after they believe the economy has found a bottom end up getting burned twice---once on the way down and then once again after the false recovery. The recession of 1980 that double dipped in 1981 and 1982 is a great example of a W-shaped recession.

To read more on recession click here


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