Francesco Grigoli | International Monetary Fund (IMF)
Daniel Leigh | International Monetary Fund (IMF)
Antonio Spilimbergo | International Monetary Fund (IMF)


Great lockdown , recovery , COVID-19 crisis.

JEL Codes:

We outline five stylized facts that distinguish the Great Lockdown from other recessions and have important implications for the unfolding recovery. We argue that the recession will probably be V-shaped, not only because of quick policy responses which prevented a financial crisis, but also the world learned to adapt to the pandemics faster than expected and vaccines were developed in record time. Yet, the legacy of unprecedentedly large policy responses on the balance sheets can affect the shape of the recovery. In particular, the corporate sector balance sheets can hide bad surprises once exceptional measures expire. At the same time, households, who built up a stock of savings and invested in durable goods, are likely in a stronger position compared to other recessions and their pent-up demand could power the recovery. 
Fact I: A V-shape recession after the vaccine
At the beginning of the COVID-19 crisis there was a lively debate about the depth of the recession and the speed of the recovery. The discussion revolved around which letter would best describe the output dynamics: “L”, ”V”, ”U”, or “K”? This alphabet soup reflected the little we knew about the nature of the recession. If the proximate cause—the pandemics and the measures to contain them—were known, the propagation mechanisms were unclear. Was it a demand or a supply shock, or both? Which one would prevail? Now that several countries are on track with vaccination, we can observe a pattern: as the population of a country gets vaccinated the recovery becomes more robust. That is, conditional on a significant fraction of the population getting vaccinated, the recovery likely takes a “V shape”.  Yet, from a cross-country perspective, the recovery could turn out to be more akin to a “K-shaped” one as poorer countries are still waiting to have a significant proportion of the population vaccinated and activity remains subdued.
Figure 1: Virus, Variants, Vaccines, and V-shaped service-intensive recession

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Fact II: “V-shaped” is due to many factors

Which factors made it a “V-shaped” recession for countries where vaccination is more advanced? There are, at least, four concurring reasons: 1) strong  policy response; 2) no financial crisis after the initial drop of the markets in March; 3) scientific breakthrough and development of the vaccine happened much faster than anticipated; 4) adaptation and learning. The last factor was particularly interesting. Agents (households, governments, and firms) learned to live with the pandemic and recurrent lockdowns.  This learning is illustrated in Figure 2. The left panel shows that stringency measures declined over time. The middle panel shows that the sensitivity of mobility to lockdowns and increases in COVID-19 cases declined over time. Also, the contraction in the service sector that was so prominent in April 2020 was generally irrelevant in December (right panel).  

Figure 2: Learning to live with the virus
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Fact III: Exceptional policy support

One key factor contributing to the V-shaped recession is the exceptional policy support. This took the form of direct household support (also in emerging economies) and of forbearance. The chart below illustrates both facts. In sharp contrast with what happened in previous recessions, bankruptcies went down in advanced economies. This was certainly important to avoid the deepening of the crisis but creates a challenge for the future as regulatory forbearance may have hidden ‘zombie firms.’

Figure 3: Exceptional support (the snow blanket effect)
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Fact IV: Unusual saving behavior
If support to companies may have created zombie firms, support to households has had clear effects on household saving, which boomed in all advanced economies (left chart). This is in contrast with previous recessions in the US (right chart). The unusual behavior of the household saving rate is because households had few opportunities to spend the direct fiscal support and will help the incipient recovery once mobility restrictions ease. The US saving rate spikes also reflected the especially large and broadly targeted government transfers.

Figure 4: Record saving rate

Sources: Haver Analytics; US Bureau of Economic Analysis; IMF staff calculations.

Fact V: Unusual consumption patterns
If the saving rate was abnormal, how do consumption patterns look like? They were also very different during the Great Lockdown compared to other recessions. Consumption of durable goods boomed while the consumption of services collapsed, consistent with the evidence showing that the pandemic hit contact-intensive sectors harder, and, with people spending more time at home, increased demand for electronics, furniture, and other consumer goods.

Figure 5: Unique consumption patterns

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  • 1.
    Research Department, IMF. E-mails:,, The views expressed in this note are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

About the authors

Francesco Grigoli

Francesco Grigoli is an Economist in the IMF’s Research Department and an adjunct professor at Georgetown University. Previously, he worked in the IMF’s Fiscal Affairs and Western Hemisphere Departments and was a visiting scholar at Columbia University. He published extensively in academic journals on a wide range of topics in macroeconomics and international economics. His current research focuses on expectation formation mechanisms, monetary policy, and the role of firms’ shocks in aggregate fluctuations. He received his PhD in Economics from the University of Insubria and holds a Master’s in International Economics from the University of Sussex.

Daniel Leigh

Daniel Leigh is Division Chief in the Research Department of the International Monetary Fund. His current responsibilities include heading the division that prepares the IMF’s flagship External Sector Report. Past IMF positions include Deputy Division Chief in the Western Hemisphere Department, covering the United States and Belize, and Deputy Division Chief at the Research Department, leading teams that produce the World Economic Outlook. He is the author of several articles and book chapters on international macroeconomics, with a focus on fiscal and monetary policy and forecasting. He holds a Ph.D. in Economics from Johns Hopkins University, and an M.Sc. in Economics from the London School of Economics.

Antonio Spilimbergo

Antonio Spilimbergo is deputy director of the Research Department at the International Monetary Fund. He has been IMF mission chief for Brazil, Italy, Slovenia, Russia, and Turkey. He is a research fellow of CEPR and a member of the Research Advisory Board of the Central Bank of Russia. His papers have been published in AER, Review of Economic Studies, AEJ: Macroeconomics, and the Journal of International Economics. He co-edited the books Getting Back on Track: Growth, Employment, and Rebalancing in Europe and Brazil: Boom, Bust, and the Road to Recovery. He received his undergraduate diploma from Bocconi and his Ph.D. from the Massachusetts Institute of Technology.

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