K-Shaped Recovery

The pandemic has surely led to one of its kind events in many cases, and K-Shaped recovery is also among them. When COVID-19 was leading the economies into recession, there were many arguments among the experts about the path to recovery.

IMF in its report dated 11th May, also cautioned that major epidemics in the century have led to a rise in income inequality, pointing to a K-Shaped recovery.

What is K-Shaped recovery?

How does it impact the economy?

K-Shaped recovery occurs when following a recession, the economy recovers at a different pace, times, etc. i.e., after the recession, some sectors will recover better than others.

In other words, K-Shaped recovery can be explained as the one where recession is quick like V-Shaped for the socially advantaged whereas slow like L-Shaped for socially disadvantaged.

COVID-19 led to a lot of loss for the economies, but slowly economies have started to show healing signs, and thus experts have decided to call this recovery K-Shaped.

Industries like retail, technology, or software services have recovered while entertainment, hospitality, or travel have continued to decline post-March levels. As is evident, some sectors have recovered quicker than other sectors, their recoveries forming two arms like the letter K and thus K-Shaped recovery.

Studies have shown that this K-Shaped recovery has been happening in varying degrees since the financial crisis of 2008 and this growing gap can be among the countries, sectors, companies, or people.

Several economists have described K-Shaped recovery in various forms, an example being when higher and advanced technology replaces older technology or manual labor throughout the recession. This can be seen in the present pandemic.

COVID-19 has led economies to a standstill, and majority of the people have adopted working from home, tech companies have boomed while other sectors still struggle to survive like the hospitality, tourism sectors.

Following are some of the examples where K-Shaped Recoveries have been evident:

1. Among Countries: Since the financial crisis of 2008, China has been on an incredible buying spree by gobbling up companies and crucial ports across the globe. This had led to debt trap situations, where China recovered quicker than in other countries.
2. Within Countries: While investors in India’s stock market have made gains, millions of people have lost their jobs and private consumption has collapsed.
3. Within Sectors: Some sectors, like tech companies, are making a good income, while other sectors are struggling to survive.
4. Among Companies: Companies like Jio have made huge profits, it has swallowed most of the future group. Also, Adani acquires local airport monopolies and has a quasi-monopoly on ports.

All these examples show how some have recovered quickly while the condition of rests is declining. Thus K-Shaped recovery has a key characteristic i.e. it leads to a rise in income inequality – the rich become richer whereas the poor become poorer!