It has been a year since COVID impacted the region’s economies. The progress made in recent months, both in the development of vaccines, the fiscal and monetary support, along with the incredible adaptability of individuals and businesses has been tremendous. For this 2021, the expectation of strong economic growth and a recovery of employment is already widespread, but the truth is that the total recovery would be achieved in the next 1 to 2 years. That’s when central banks should consider readjusting their policy rates, which are now at the historic floor. At the level of financial markets, the improved economic outlook will continue to have an incremental effect on them. This will increase bond yields and reinforce the steepening dynamics of the curve.
The problem then lies not in the possible macro recovery, but in the shape of the recovery of the economy. At the beginning of the pandemic, there was talk of a V-shaped rapid recovery, a slow U-shaped recovery, or a recovery followed by another crisis and, in turn, another W-shaped recovery. However, the unfortunate and difficult thing is that of the 30 letters that exist in the Spanish alphabet, the recovery we are seeing actually has a K-shape. This pattern implies a decoupling of the different sectors of the economy and supposes an economic rupture that translates into winners and losers. For example, while in the American stock market we find Amazon, Shopify, Walmart, AstraZeneca, Netflix, Pfizer or Google as winners we also have those who are finding that their business, overnight, seems to be worthless. But not only in the stock exchanges the differences have increased, in society the gap between those who have and those who do not has has also increased, something that is replicated at the international level, where there is also a greater difference between those countries that were already considered as rich and with those that already lived with greater poverty.
A K-shaped recovery means that the economy is divided in two, on the one hand there are those sectors or activities that can continue to function more or less normally after the pandemic or in pandemic conditions – mainly those essential and /or those in which teleworking is possible – and, on the other hand, there are the sectors or activities that continue to fall such as travel, entertainment, hospitality and coffee concessions. In short, we have the sectors capable of teleworking and essential services and those that need social interaction and that have been decided not to be as important or necessary. Thus, a K-shaped recovery implies a strong decoupling and increase in inequality in the economy.
In an economy like ours, where inequality was a reality even before the pandemic, it is not sustainable for one part of the economy to flourish and another part of the economy to decline. The economy does not function as watertight compartments. Even more necessary is now the capacity of the state to transform revenue into a better distribution of income in order to reduce inequality and not for increased revenue to translate into a larger size of the state as has happened.
The content of this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of El Mostrador.