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In the News

Is K the new U? How economic recovery may be K-shaped

Ollie Gardner

27th January 2021

The rising profits of firms such as Amazon and Nike throughout 2020 shows that strong firms may be getting stronger, whilst smaller firms and hard-hit industries will struggle to recover.

Some economists like to describe any post-recession recoveries based on the letter they most closely resemble.

Here are a few examples:

- 'U-shaped': a longer period of stagnation before recovery

- 'V-shaped': a much faster recovery

- 'W-shaped': a short period of recovery followed by another recession (aka 'double-dip recession)

A 'K-shaped' recovery shows a split in how different industries, households and firms emerge from a recession. This may have been caused by consumers choosing to buy from firms they were most comfortable with during uncertain times - thus bolstering the market shares of big name brands.

This recovery would also have an effect on income and wealth inequality, with asset-owning households (who own shares in large firms) likely to suffer less financially as a result of the pandemic.

If you haven't already, check out the free Financial Times subscription that students aged 16-19 can access through their schools. It's a great way to find interesting examples to use in your answers and also to read some quality journalism!

Ollie Gardner

Ollie is a new economics teacher at an academically selective school having previously worked in the healthcare technology industry.

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