There are four plausible recovery trajectories: V-shaped (involving a rapid rebound); U-shaped (a similar but slower return to normality); W-shaped (involving cycles of smaller recoveries in fits and starts); and the worst one, an L-shaped dynamic where the economy takes a very long time to recover, if it ever does fully. The important question to ask, though, is not what will happen, but what can we do to navigate and shape what does?
John Maynard Keynes, the most important economist of the past century, argued it is the role of government to replace the private sector if the demand for goods and services wanes. From a Keynesian perspective, two policy areas are most important when the economy sputters: government spending and the lending and interest rate policies pursued by the reserve bank.
The Reserve Bank of New Zealand has started an unprecedented and aggressive programme of lower interest rates and relaxation of borrowing constraints (for example, for home loans), and a lending (or so-called quantitative easing) programme. These monetary measures are welcome, but are unlikely to be sufficient to kick-start an economy incapacitated by the fear of the epidemic and a policy of elimination of the virus.