Page 27 - Policy Economic Report - April 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

K-Shaped Recovery

A K-shaped recovery occurs when, following a recession, different parts of the economy recover at
different rates, times, or magnitudes. It is called K-shaped because the path of the different parts of the
economy when charted together may diverge, resembling the two arms of the letter "K."

A K-shaped recovery leads to changes in the structure of the economy as economic outcomes and
relations are fundamentally changed before and after the recession.

The term "K-shaped" recovery gained prominence in 2020 and 2021 in the wake of the sharp recession in
the U.S. that accompanied the COVID-19 pandemic. It was used to describe the uneven economic recovery
across different sectors, industries, and groups of people in the economy.

Unlike other letter-shaped descriptors of economic recessions and recoveries (e.g. L-shaped, V-shaped, U-
shaped, W-shaped), which describe the path of economy-wide macroeconomic aggregate variables
like gross domestic product (GDP) or total employment, a K-shaped recovery describes the path of
different dis-aggregated economic variables, such as income across different segments of society or
employment in different industries, relative to one another.

Causes of a K-Shaped Recovery

• K-shaped recovery can reflect creative destruction in an economy as described by economist Josef
Schumpeter, which occurs when new technologies and industries replace older technologies and
industries over the course of a recession.

• It can reflect the public policy response to a recession in terms of monetary and fiscal policy, which
can benefit some segments of the economy more than others.

Fiscal Policy During a K-Shaped Recovery

Fiscal policy is applied when the government changes its taxation and spending to help steer the economy.
During a K-shaped recovery, governments can selectively implement tax breaks and other incentives that
target certain industries, leading those sectors to recover at a faster pace than those left unaffected by
the policy measures. The government also can choose to spend on infrastructure or other projects that
benefit a certain industry.

Example of K shaped recovery-

Some economists have pointed to the aftermath of the economic fallout due to the pandemic as resulting
in a K-shaped recovery. For instance, the technology sector remained robust amid work-at-home
measures, teleconferencing, and lockdowns that kept people online and streaming. Likewise, parts of the
healthcare sector that worked on vaccines and treatments saw a boost. Meanwhile, service-based
industries such as restaurants, travel, and hospitality took an outsized hit.

Thus, a K-shaped economic recovery is where various sectors, industries, and groups within an economy
recover at different rates after a recession. This can happen for several reasons related to technological
and structural change within an economy as well as responses to a recession by policymakers.

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