Recent history tells us recession recoveries can be V-, U- or L-shaped. This shorthand is tied to how long it takes for economic output to return to its previous trend. A V-shaped recovery, the most optimistic, suggests a bounce-back within six quarters. The U-shaped and L-shaped recoveries stretch to five years or more. Increasingly, the coronavirus pandemic recovery looks to be a U- or L-shape.

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There are enough unknowns and rapid changes that macroeconomic indicators, particularly those relying on the past month’s data, are becoming less useful. Instead, we are looking at four factors that will determine the shape and speed of the global economic recovery and identifying knowns within them. Two factors are coming into sharper focus: whether the damage to the financial sector is shouldered through household debt or corporate debt, and the behavioral response by consumers.

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We can look to the global financial crisis and subsequent Great Recession to understand the basic principles at play: the 2008-2009 private sector bailouts in the U.S. and U.K. were not always popular, but they did produce a faster recovery. Having the private sector shoulder responsibility for cleaning up its balance sheets extended the time needed to reach pre-crisis activity levels. The bailouts also prevented bankruptcies, which would have had a ripple effect on employment and consumer spending.

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Even though the pandemic is not an identical situation to the Great Recession, the same principles about the recovery timeline hold true. Since household debt was relatively modest before COVID-19, savings rates will remain elevated until consumers digest the full range of corporate and government responses and feel comfortable spending again.