A ‘K’ shaped economic recovery?

Posted 12.10.2020

The Coronavirus pandemic has brought about a great deal of uncertainty in not only our day to day lives, but the global marketplace and our domestic economy. Whilst economists attempt to forecast the future for recovery, success will vary between sectors and geographies.

There has been much debate amongst experts as to what the future of our economic health looks like; a ‘V-Shaped’ recovery being the most optimistic approach, suggesting a relatively quick bounce back, whilst more cautious forecasters anticipate a more gradual recovery rate. Some have even predicted a ‘U-Shaped’ recovery, suggesting a long period of decline and a very slow rate of overall progress in the economic climate.

In recent weeks, a ‘K-Shaped’ recovery seems the most likely path. This would suggest that some sectors of the economy would face a fast upturn, whilst others may continue to decline for a significant period of time.

The service sector and low-wage workers are experiencing the most conflict, whilst those with assets are more likely to soar in the current economic climate. The real estate industry has skyrocketed, particularly in US cities, with more businesses and individuals purchasing property. Some fear the future impact this will have, particularly the value of rental properties, with more workers moving out of urban areas for green space.

A similar trend can be seen to be taking place throughout the UK. Some would argue this has been heavily encouraged through government incentives, such as the recent stamp duty holiday, incentivising property purchases.

The concept of a ‘K-Shaped’ recovery is that those with a higher level of skill or qualification will continue to have lower unemployment rates and these industries will remain strong. This gap could become more pronounced after the pandemic as job losses continue in sectors where workers are in low paying and zero-hour positions.

This isn’t a new concept. It reflects a widening of an already pronounced wealth divide, with the resilient sectors continuing to surge through the pandemic. Service providers such as technology firms and online retailers continue to see consistent growth in their industries, whilst many sectors serving physical needs, such as restaurants, hotels and airlines face great volatility.