K-shaped economic recovery

What is a K-shaped recovery?

• A K-shaped recovery happens when different sections of an economy recover at starkly different rates.
• Households at the top of the pyramid are likely to have seen their in- comes largely protected, and savings rates forced up during the lockdown, increasing ‘fuel in the tank’ to drive future consumption.
• Meanwhile, households at the bottom are likely to have witnessed permanent hits to jobs and incomes,”.
• These cleavages are already visible.
• Passenger vehicle registrations (proxying upper-end consumption) have grown about 4 per cent since October while two-wheelers have contracted 15 per cent.

What are the macro implications of a K-shaped recovery?

• Upper-income households have benefitted from higher savings for two quarters.
• The extent that households at the bottom have experienced a permanent loss of income in the forms of jobs and wage cuts, this will be a recurring drag on demand, if the labour market does not heal faster.
• Second, to the extent that COVID has triggered an effective income transfer from the poor to the rich, this will be demand-impeding because the poor have a higher marginal propensity to consume (ie they tend to spend (instead of saving) a much higher proportion of their income.
• Third, if COVID-19 reduces competition or increases the inequality of incomes and opportunities, it could impinge on trend growth in developing economies by hurting productivity and tightening political economy constraints.

https://indianexpress.com/article/explained/explained-ideas-what-is-a-k-shaped-economic-recovery-and-what-are-its-implications-7141416/