Forget U, V or W - experts are now talking about K-shaped recovery

Economists across the globe contemplate that major countries are now staring at a K-shaped recovery in which certain sections flourish, while others witness a drastic slump.

Business Desk, ETV Bharat:Since the time economies worldwide entered recessionary mode due to the coronavirus pandemic stalling economic activity, experts and administrators have been busy predicting the trajectory of the recovery process.

So far, most economists have been seen using letters like U, V, W, Z or L to forecast the growth path of an economy. But now, many are warning about a newer and more dreaded form of rebound – a K-shaped recovery.

What is a K-shaped recovery?

The K-shaped recovery essentially indicates the uneven impact of the slowdown on various industries, sectors or people. In such a scenario, mimicking the pattern of the two spokes of the alphabet K going in different directions, some segments of an economy flourish and recover quickly, while others slump.

For instance, while industries driven by technology and Internet seem to have recovered from the shock of the pandemic and are back at their pre-Covid operating levels, the travel, entertainment, hospitality, and food services industries etc continue to head south from their March levels.

Growing income inequality is also one of the most important traits of the K-shape theory. As explained by various experts, when an economy sees a K-shaped recovery, things get better for the haves, and worse for the have-nots.

Other than that, the growing divergence between stock market trends and the real state of an economy also points at a K-shaped recovery. Major developed and emerging economies have been witnessing huge uptick in equity markets, even as their gross domestic product (GDP) growth rates plunged into the negative territory.

What experts say?

Peter Atwater, an adjunct lecturer in the economics department at William and Mary, a university in Virginia, is credited for coining the ‘K-shape’ theory. He had earlier told a leading international media house: “I call it the K-shaped recovery because for some it’s been a sharp rebound, for others it’s been a continuing decline.”

“The biggest and wealthiest have been on a clear path toward recovery. Meanwhile, for most small businesses and those worst off, things have only become worse. The contrast is piercing: One group feels better than ever while the other borders on hopelessness,” he added.

Earlier this month, Joe Biden blamed US President Donald Trump for creating an unusual ‘K-shape’ recovery.

“Economists are starting to call this recession a K-shaped recession, which is a fancy phrase for everything that’s wrong with Trump’s presidency,” Biden said. “What ‘K’ means is those at the top are seeing things go up, and those are the middle and below are seeing things go down and get worse.”

US Chamber of Commerce president Suzanne Clark wrote a blog post earlier this month titled ‘The K-Shaped Recovery and the Cost of Inaction’. She said: “Long gone is the notion that we’ll have a V-shaped recovery—a deep economic decline followed quickly by sharp rebound. Instead, what we’re looking at is a recovery that will be vigorous for some sectors while others remain in freefall.”