Has been mentioned in Merrill Lynch’s latest European economic note – aptly entitled “Alphabet Soup”.
As long as world financial markets do not suffer a second heart attack, a full “W” looks unlikely. The recovery will have some momentum.
The “V” may describe the initial phase of the recovery. From the very low base to which output is falling in many sectors, it is easy to bounce back for a while with impressive growth rates. But erasing the losses incurred during the recession will not be easy or swift. It will probably take until early 2012 for Eurozone GDP to return to its early 2008 peak level.
The “square root” scenario is becoming quite popular, with a sharp initial recovery followed by a levelling off halfway down the road. This probably fits our Eurozone scenario best. Except, we do not believe that the initial recovery will be followed by semi-stagnation, as the “square root” implies. We merely look for some modest loss of momentum once the initial mechanical bounce-back has run its course.
So presumably Merrill is angling not for a square root recovery (below left) but something along the lines of the below right.
We don’t even know what to call that. An angled square root? A squiggle root?
In any case we are filing it with the hooks and diminishing sine waves of odd economic recovery shapes.
Related link:
‘V’ victorious – FT Alphaville