WHAT IS 'V-Shaped Recovery'

V-shaped recovery is a type of economic recession and recovery that resembles a "V" shape in charting. Specifically, a V-shaped recovery represents the shape of a chart of economic measures economists create when examining recessions and recoveries. A V-shaped recovery involves a sharp decline in these metrics followed by a sharp rise back to its previous peak.

BREAKING DOWN 'V-Shaped Recovery'

V-shaped recovery is one of countless shapes a recession and recovery chart could take, including L-shaped, W-shaped, U-shaped and J-shaped. Each type of recovery represents the general shape of the chart of economic metrics that gauge the health of the economy. Economists develop these charts by examining the relevant measures of economic health, such as employment rates, gross domestic product (GDP) and industrial output.

In a V-shaped recession, the economy suffers a sharp economic decline, but quickly and strongly recovers. Such recoveries are generally spurred by a significant shift in economic activity caused by increased consumer demand and spending.

The recession of 1953 in the United States is a clear example of a V-shaped recovery. The economy was booming in the early 1950’s, but the Federal Reserve anticipated inflation, and thus raised interest rates which then tipped the economy into a recession. Growth began to slow in the third quarter of 1953, but by the fourth quarter of 1954 was back at a pace well above the trend. Therefore, the chart for this recession and recovery would represent a V shape.

V-Shaped Recovery Compared to an L-Shaped Recovery

In contrast to a V-shaped recovery in which the economy rebounds as strongly as it declined, an L-shaped recovery is type of economic recession and recovery characterized by a steep decline in economic growth followed by a slow recovery. In an L-shaped recovery, a steep decline caused by plummeting economic growth is followed by a straight light indicating a long period of stagnant growth. An L-shaped recovery is the most dramatic type of recession, and recovery can take as long as a decade.

Countries normally experience decreased economic growth every few years, and when economic growth decreases for roughly six months and then recovers, it is considered a recession. However, when economic growth drops more drastically and lasts for a year or more, economists typically classify it is as a depression. Because an L-shaped recession indicates a drastic drop in economic growth, and the economy does not recover for a significant amount of time, an L-shaped recession is often referred to as a depression.

  1. Economic Recovery

    An economic recovery is a period of increasing business activity ...
  2. Recovery Rate

    Recovery rate is the extent to which principal and accrued interest ...
  3. Capital Recovery

    1. The earning back of the initial funds put into an investment. ...
  4. Jobless Recovery

    A jobless recovery refers to when economic growth post-recession ...
  5. Weekly Chart

    A weekly chart is a technical price chart where each data point ...
  6. Line Chart

    A line chart connects a series of data points with a line and ...
Related Articles
  1. Insurance

    American Express Returns Vs. DJ Industrial Average

    American Express has handily outperformed the Dow Jones Industrial Average since 2009, but unusual weakness in the last year is taking its toll.
  2. Trading

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify chart patterns.
  3. Insights

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with economic downturns.
  4. Investing

    Most U.S. Homes Worth Less Than Before the Recession...Still

    Two out of three U.S. homes are worth less than in 2007.
  5. Insights

    5 Factors That Could Send The United States Economy Into A Double-Dip Recession

    A decline in consumer confidence and stock market correction could be enough to sink the economy again.
  1. What causes a recession?

    A recession is a significant decline in economic activity lasting more than a few months, normally visible in real GDP, income ... Read Answer >>
  2. What is a good Sharpe ratio?

    Understand how the Sharpe ratio is calculated, and its significance and use for investors in evaluating the performance of ... Read Answer >>
  3. What Are the Best Measurements of Economic Growth?

    Learn how economists and statisticians track economic growth and why GDP might not be the best measurement of real economic ... Read Answer >>
  4. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center