Don’t bank on a V-shaped recovery

Last week, Britain and France were treated to an avalanche of financial statistics jostling with the macabre daily litany of Covid casualty numbers. All are premised on a V-shaped recovery in which the severity and rapidity of the Covid recession is matched by a rapid bounce back. But the French above all should be aware of a historical parallel that suggests caution regarding the V-shaped recovery.

But first the size of the problem. In Britain, the Office for Budget Responsibility produced the most pessimistic scenario for the British economy compared to those of KPMG, Morgan Stanley and the OECD. Based on a three-month lockdown it projects a 2020/21 budget deficit of 14 per cent falling back to a 2.1 per cent trend by 2022 – the largest single-year deficit since the second world war. The OBR sees 2020 GDP falling by 35 per cent and unemployment hitting two million, or 10 per cent of the workforce.