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DAILY NEWS ANALYSIS

  • 06 April, 2021

  • 5 Min Read

K-Shaped Recovery

K-Shaped Recovery

  • A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
  • This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
  • A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
    • This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter "K."

Implications

  • COVID has triggered an effective income transfer from the poor to the rich, this will be demand-impeding because the poor have a higher marginal propensity to consume (i.e. they tend to spend (instead of saving) a much higher proportion of their income.
  • Upper-income households have benefitted from higher savings for two quarters.
  • Households at the bottom have experienced a permanent loss of income in the forms of jobs and wage cuts; this will be a recurring drag on demand, if the labour market does not heal faster.
  • If COVID-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.

Source: TH


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