The permanence of negative growth shocks

This recent post on Econbrowser is worth reposting in full.

Suppose that output Y grows at 1% quarterly in log terms.

Then a 2 percentage-point drop in one quarter will permanently decrease the trend even if growth reverts back to the pre-shock level in the succeeding quarter.

The only way to revert back to the pre-shock trend is to balance the 2-ppt drop by a subsequent 2-ppt increase in a subsequent period. 

This simple illustration resonates with the economic crises experienced during the Marcos era, which undoubtedly had permanent negative effects that we are only recently counteracting with stellar growth. Our future leaders should take heed of these potential permanent effects.