The economy won't recover immediately

Even two years seems fast

Here is a scenario for the economy through the end of 2021:

Ah yes, the amazing squiggle line on a graph that looks like it was drawn by accident. This is the kind of squiggle that some very serious economists are talking about - the mythical V-shaped recovery.

Now, the recovery could take a lot of different paths. Real GDP could jump more quickly and there could be a steeper slope. Or, it could be slower recovery with a less steep slope (often referred to like a L-shaped recovery.

I chose this particular squiggle by taking the current estimate for 2020Q2 GDP from GDPNow (-41.9% annualized) and then set 2021Q4 GDP to be equal to the last peak for GDP (2019Q4). Then, I just worked out the constant growth rate needed to get from 2020Q2 to 2021Q4.

The result? An average annualized growth rate that is just over 8%.

For context, from 2009 to 2019 the economy grew just over 2% per quarter. So, we would need about four times as fast of a growth rate for a year and a half to get back to pre-COVID-19 levels.

That seems very optimistic too me. And, what’s scary is that even in that optimistic scenario it will still take close to two years for this thing to play out.

Bottom line, the economy is going to need some time to recover. So get comfortable because it could be a long and bumpy ride.