2022-01-13
Understanding The K-shaped Recovery
Most industries have been affected by the COVID-19 pandemic. However, for the last few months, the world's economy has made some positive progress. The S&P500 index has increased higher than before COVID-19 occurs eventhough after experiencing a major crash in March 2020.
During the economic recession, one of the ways for economists to analyse the financial future is by using curves that are shaped in roman alphabets, such as K-shaped, U-shaped, and V-shaped.
K-shaped recovery is a scenario that usually happened after an economic recession where different economic sectors recover at different rate, time, and magnitude. This situation is called K-shaped because there are sectors that increase and show strength, while the other sectors continue0 to show weakness. By illustration, the economic growth forms a curve that resembles the roman letter 'K'.
K-shaped recovery leads to changes in a broader economic structure due to the result of yields and economic relations before and after economic recession.
Comparing to the other recovery shapes, K-shaped recovery spurs a very worrying and an uneven future economic. In other words, K-shaped recovery causes inequalities and it makes the economy to worsen.
COVID-19 pandemic had caused serious damage to the economy. Therefore, it is not impossible why K-shaped recovery always become the hot topic lately.
This is shown by the economic recovery where there are industries that currently recovering such as technology, while there are also industries that still need aid such as the tourism industry.
Among the society, most low-income earners are still struggling in order to survive, while high income earners are not affected and there are even some who gained more during the pandemic.
There are several differences between the K-shaped recovery and other shapes of recovery. The differences are shown below:
The economy hits a downfall, followed by a sharp recovery. Time spent at the lower point is very short as the economy recovers quickly.
The steep fall takes more time to recover when it reaches the lowest point, and finally followed by a sharp increase.
When the economy experiencing an abrupt decrease followed by temporary recovery and continues to fall back before making a recovery move upwards.
This scenario is when the economic experiences a sharp decline and it is unable to recover in a very long time.
The K-shaped recovery is a recovery that occurs after recession, where some sectors managed to recover, while the other sectors are left behind. Hence, K-shaped recovery will give long-term impacts in the form of unemployment, wealth gap, and monopoly by wealthy companies.
The main concern about K-shaped recovery is that it may take years and causes economic distress that already exists in the country to get worst.
Economic progress for every sector is different. However, it will always correlate with each other. The difference about K-shaped compared to other recovery shapes are the inequality between sectors after recession.
The unequal economic gap continues to shown in a country. This can be seen when the economy is in a recovery phase after the COVID-19 pandemic, and caused the rich to become richer while the poor become poorer due to low salary, lost of job, and also salary cut.
1. Investopedia
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