With the majority of countries going through a K-shaped economic recovery, the gap between the haves and have nots will widen and big companies will consume smaller ones faster than ever.
World Bank President David Malpass said in Washington on Thursday that the world is going through a K-shaped economic recovery. It was just a month ago when Chris Wallace, the moderator of the Presidential debate between Donald Trump and Joe Biden brought up the idea of a K-shaped economic recovery. Not just the developed nations like US, even the larger emerging nations like India are facing the the same (K-shaped) phase of economy recovery post the Coronavirus induced slowdown.
Though the US economy underwent a K-shaped recovery as far back as 1953, the term was not in common usage until a couple of months ago. The term was uncommon even to those who check market updates regularly and kept themselves abreast of the latest business news updates. Even though it has been making the rounds in media publications, the literal meaning of a K-shaped economy is still a mystery to many.
The world is going through a K-shaped economic recovery.World Bank President David Malpass
What is a K-shaped economic recovery?
A K-shaped recovery happens after a recession, when different parts of an economy recover at different rates, times and magnitudes. The most common trait is that the gap between winners and losers widens faster than normal. A section of businesses or society achieves unprecedented growth, while the other hits rock bottom.
A K-shaped recovery happens after a recession, when different parts of an economy recover at different rates, times and magnitudes.
For example: In early September, even as countries like US and India were recovering from the recession, the share market was growing fast, while at the same time millions from the unorganized sector were losing their jobs. It shows that a section of society (which in percentage is small) was making good money, while the wider of society was struggling. Another example is profits of retail, e-learning and pharmaceutical companies are swelling to quite a high rate, while real estate and non-essential item firms are bleeding due to poor finances.You will find more infographics at Statista
To put it another way, in the United States, industries like retail, software and technology have started recovering, while travel, entertainment and hospitality are struggling to find their feet. In a K-shaped recovery, bigger conglomerates with sufficient liquidity can eat up small players. A case in point is Indian billionaire Mukesh Ambani‘s Reliance is purchasing supermarket giant Future Retail which can force competitors with lower investment to shutter shops.
A K-shaped recovery is unlike a uniform economic recovery where all sectors, industries or a group of people recover in nearly equal measure.
As a result, a K-shaped recovery brings about broader changes in the structure of the economy and society as economic outcomes and relations are principally changed before and after the recession. The reason it is called K-shaped is because when different aspects of the economy are charted together, they divert in two directions like the spokes of the letter K. One going upward and the other downward.
Watch: Who made profit during the Coronavirus economic lockdown?
How does it affect you?
The disparities triggered by a K-shaped recovery are not only to be seen among business groups but the job market as well. The employment landscape becomes uneven, impacting aspirants from different economic backgrounds differently. High-income individuals will be better equipped and fortunate in landing jobs than those from middle-class income group. The lower-class will be the last to return to employment.
Likewise, as big businesses outgrow small ones, employees working in the latter bracket of companies will suffer job losses. It subsequently trickles down to small-scale retailers depending on production in companies which are forced to shut down their businesses. Similarly, countries which have limited access to help people losing their income are generally the worst sufferers of a K-shaped recovery.
Countries which have limited access to help people losing their income are generally the worst sufferers of a K-shaped recovery.
A K-shaped recovery can provoke political debates with one side blaming the other for favoring the haves and ignoring the have nots. Democratic nominee Joe Biden, referring to a K-shaped recovery in the US, blamed President Trump for relaxing taxation for billionaires. “Billionaires like him in the middle of coronavirus pandemic have done very well. Billionaires have made another $300 billion because of Trump’s profligate tax proposal,” Biden said.