Varadkar dismisses alphabet soup of recoveries

Cantillon: Forum hears economic hit of Covid-19 likely to be in multiple waves

The Tánaiste Leo Varadkar on Friday cast doubt on what he described as "the single-hit hypothesis". He was referring to the alphabet soup of possible economic recoveries from coronavirus.

First we had the optimistic V-shaped recovery, which assumed a short sharp dip and a rapid return with little or no consumer scarring. We jettisoned that for a U-shaped recovery, one with a more extended downturn, once the gravity of the situation became clear and the unemployment rate whipped up.

Then when it became apparent that some sectors like hospitality were going to be in the doldrums for a long time, possibly years, while others were already up and running, people proposed the K-shape with two contrasting arms. Lurking in the background was the dreaded L-shape, which implies long-term decline.

We now also have the Nike swoosh,which implies a longer bottoming out before a strong rebound.


Rough reality

But reality is rarely that smooth. The phased reopening of the economy here has already become quite messy on account of a resurgence in the cases.

And Varadkar is probably right when he says we could suffer “multiple economic hits”. Addressing the annual conference of the Dublin Economic Workshop (DEW), he said:“A lot people are talking about what type of recovery we might have, whether it is U-shaped or V-shaped or the Nike tick or even K-shaped.” However, these single-hit hypotheses assume the pandemic will only have one economic hit. “It is more likely that there will be multiple waves,” he said.

Reopening economy

The insidious nature of the virus – the fact that it can be transmitted by asymptomatic carriers – makes containment extremely difficult, and eradication next to impossible without a lockdown of gigantic proportions, one that comes with too big an economic risk to the State.

There is no alternative but to reopen society gradually while dousing fires where they occur and accepting the fact that recovery is probably going to be more like two steps forward, one step back.