What is a K-shaped economic recovery?

When it became clear that a coronavirus pandemic would cause a recession, economists were debating what form it would take.

Would it be a V, with a quick drop and an equally quick recovery? Or a U, with slower recovery? Or rather, an L, without any recovery?

Now, experts say they believe none of these assumptions were correct. According to them, the recovery of the global economy will be in K, that is, a rapid decline with a subsequent sharp division between winners and losers.

“What we are seeing is a recovery that will be beneficial for some sectors, while others will remain in free fall,” Suzanne Clark, president of the United States Chamber of Commerce recently wrote in a post.

On the one hand, there are the financial and software, banking, telecommunications, real estate and some retail services sectors, which have already recovered from the jobs lost at the beginning of the pandemic. On the other hand, travel, events and general leisure sectors.

One of the most evident examples of the impact of the pandemic is the workers’ ability to adapt to the new work dynamics.

Those who managed to adjust to the so-called “home office” routine quickly regained confidence in the economy and started spending again. For the rest, “there are no signs of recovery and they are increasingly afraid that it will be delayed,” said Peter Atwater, an expert who popularized the term “K-shaped recovery” and an adjunct professor at the University of Delaware (USA).

Slow recovery

The United States entered a recession in February this year, ending an 11-year economic expansion. And although the recovery took place as early as May, job losses are lasting far longer than expected. “The first people to lose their jobs are usually the last to get them back,” Gregory Dac, chief economist at Oxford Economics for the United States, tells BBC News. As a result, in August there were still 7.4 million more unemployed than in February, according to official data from the American government. Not least, the economy is playing a central role in the US presidential race.

“Economists are starting to call this recession a K-shaped recession, which is an elaborate way of referring to everything that isn’t working under Trump’s presidency,” said Democratic candidate Joe Biden recently. The problem, in the opinion of many experts, is the inequalities that the K shaped recovery brings.

“What is happening is nothing more than the continuation of four decades of growing economic inequality in the United States,” Joe Brusuelas, chief economist at RSM consultancy, tells BBC News.

Respondents to this report agree that the way out of this crisis is very similar to what happened with the Great Recession of 2008, when the government tightened its grip on financial markets. Consequently, those who benefit from the policies are only “10% of the population”, according to Brusuelas. But even within the financial markets themselves, the situation is not the same for all companies.

The gains of American stock exchanges are mainly due to the good health of some of the largest companies in the country. Apple, Microsoft, Amazon, Alphabet and Facebook, the five largest companies in the S&P 500 index – which is based on the market capitalization of the 500 largest companies listed on the New York (NYSE) or NASDAQ (electronic exchange) – are responsible more than a quarter of the value increases in this index since the end of March. In addition, while “large corporations had unprecedented access to capital in the credit markets during this crisis, many small businesses do not know whether they will have access to any type of financing,” recalls Atwater.

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