What does a K-shaped recovery mean?

The outbreak of the pandemic COVID-19 brought an unprecedented slowdown to the world economy. Now, economists are wondering what kind of economic recovery awaits us.

With COVID-19 spreading around the world and much of the world’s population confined, the economy stopped, global GDP fell sharply, and jobs were massively destroyed. With the world trying to return to a new normal and states trying to grease the economic machinery, analysts are trying to explain what the economic recovery will look like.

Looking for a way to describe the resurgence of the economy, they have turned to the alphabet. This is where we speak of a recovery in the shape of U, V, W and L. But, the letter chosen by most economists to interpret the current economic outlook is K.

Types of economic recovery

Let’s start by explaining what the different types of recoveries consist of. Thus, if we are in the most favorable scenario for the economy, we would be talking about a V-shaped recovery. In this situation, the economy would return vigorously and quickly to the levels of employment and investment prior to the pandemic. On the contrary, if we refer to a U-shaped recovery, the economy and the level of employment would stagnate at low levels for a longer period of time and subsequently rebound strongly.

The case for a revival of the W-shaped economy is quite striking. It would mean that, after a strong economic collapse, a rapid recovery would come, followed by another decline and, finally, a new comeback.

The worst-case scenario would be for the economy to adopt an L shape. This would mean that it would be very difficult to recover from the downturn, with economic growth being very low or even non-existent.

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But, as we previously explained, most economists predict a K-shaped recovery. In fact, even in the US electoral campaign, people have spoken in these terms. Well, what panorama does the letter K hold? It would mean a resurgence of the economy marked by great inequalities, with winners and losers. Some sectors would be clearly strengthened and others would collapse, practically falling into an economic wasteland.

What does a K-shaped recovery entail?

In a scenario with winners and losers, there would be a great divide in the economy. The sectors that benefit the most could continue to operate normally. It is here where we find those economic activities that allow teleworking.

Indeed, these winners would include tech and software companies, telecommunications companies, entertainment giants like Netflix, and distribution giants like Amazon. Likewise, the need to obtain drugs and vaccines to deal with COVID-19 has given pharmaceutical companies a great boost, as is the case with AstraZeneca.

The sectors considered essential to the economy would also be among the winners of an uneven recovery. We are talking about food companies, essential for the subsistence of the population.

However, among those most affected by the economic effects of the pandemic, would be the airlines, travel agencies, bars, restaurants, hotels and catering services for workers. This is because these types of services require face-to-face contact, something that is intended to be avoided in times of the coronavirus. Proof of this is the case of Spain, which would be among one of the countries most affected by the very important weight of the tourism sector in its economy.

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For the greater difficulty of the companies and workers that have suffered the most from the effects of the pandemic, the economic aid that the governments of the different countries are beginning to run out and the survival of many of them hangs by a thread.

What is happening with the economic recovery?

In the United States, the country most affected by COVID-19, the recovery is proceeding with difficulties but faster than expected. All this is due to the difficulty in recovering the destroyed jobs. And the thing is, the most vulnerable people at work are those who have the greatest difficulties in getting a job again.

Therefore, for the United States it is going to be key not to leave millions of workers out of the recovery. Furthermore, if these workers are left out of the recovery, it would lead to a sharp increase in social and economic inequalities.

The economy in Great Britain is also showing signs of picking up, although unemployment remains relatively high.

If we focus our attention on Latin America, right now it is going through a situation of sharp decline in GDP, so it will have to wait until 2021 or even 2022 to resume the path of economic growth. The big problem for Latin America is that, with the current economic crisis, millions of people are at risk of falling below the poverty line.

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