Deutsche Bank was probably kidding when it argued the US recession (and subsequent recovery) might take the shape of a diminishing sine wave, but Moody’s is quite serious about a “hook-shaped scenario”.
In a report released on Tuesday, Moody’s chief international economist Pierre Cailleteau argued thus (emphasis ours):
Given the dismal global economic and financial data reported since the be- ginning of 2009, is it time to call the V-shaped scenario a fantasy, the U- shaped scenario unrealistic and consider an L-shaped scenario as our central forecast? Not quite. Moody’s is introducing the “hook-shaped” scenario, which has the steep downturn signalled by the U-shaped scenario, but neither the steep but delayed rebound of the U scenario, nor the flat stagnation of the L-shaped scenario.
Instead, it has an upward tilt that lies somewhere in between, implying a gradual and painful economic recovery.
Cailleteau is not ruling out the possibility that the hook-shaped scenario – “which will leave lasting scars” – could evolve into an L-shape. But, he argues, “it is too early to adopt [the L-shape] as our central scenario … because the full effect of government stimulus policies has yet to be seen.”
Spoken like a true economist.
The hook, by the way, is rendered in the report as follows:
