Economists have been scrambling to model how the recession might unfold. Will the recovery be V-shaped or U-shaped, or will it take more of an L-shape?
A few things about the post-virus world already appear near-certain. For one, bank balance sheets will weaken. While efforts are being made to avoid a banking crisis, there is also a risky assumption that higher capital levels put in place after the financial crisis mean a crisis can be easily avoided. Consequently, policymakers have forced real economy-supporting policies like debt-repayment holidays and low rates that will hurt banks’ earnings and balance sheets, according to Timothy Colyer, Partner and Head of Oliver Wyman, Indonesia. Oliver Wyman is an affiliate of Guy Carpenter.
While most analyses look back at what happened after the financial crisis, World War II and its aftermath may serve as an alternative model for how the post-coronavirus-crisis economy might play out.