• A K-shaped recovery is one in which the performance of different parts of the economy diverges like the arms of the letter “K.”
• Economic performance of different sectors, industries, and groups within an economy always differ to some extent, but in a K-shaped recovery some parts of the economy may see strong growth while others continue to decline.
• Unlike other letter-shaped descriptors, which focus on large aggregates, a K-shaped recovery is described in terms of data broken out across different parts of the economy.
• The meaning of a K-shaped recovery really depends on the choice of how to disaggregate data across the economy.
• The macro implications of a K-shaped recovery:
• Upper-income households have benefitted from higher savings for two quarters.

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• 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.
• 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 (i.e. they tend to spend (instead of saving) a much higher proportion of their income.
• 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.
• Policy will, therefore, need to look beyond the next few quarters and anticipate the state of the macroeconomy post the sugar rush