"If the K-shaped recovery prolongs, it could eventually lead to a long-term L-shaped recession"

[Asia Economy Reporter Kim Eun-byeol] There are concerns that if the world economy's 'K-shaped' recovery from the shock of the novel coronavirus infection (COVID-19) continues, it could eventually enter a long-term recession in the form of an 'L-shape.'

On the 7th, the International Finance Center, citing the Wall Street Journal (WSJ) and others, stated, "If the K-shaped recovery is not properly addressed, the economy could enter a long-term L-shaped recession due to a vicious cycle of household consumption contraction → worsening corporate investment and employment sentiment → further household consumption contraction."

After the economic downturn caused by COVID-19, groups that recover quickly and those that do not are appearing simultaneously. If the lower group with slower recovery does not quickly return to normal levels, it could drag down even the upper group.

The K-shaped recovery is divided into categories such as ▲advanced countries and emerging countries ▲those with wealth and those without ▲4th industrial revolution sectors like IT and bio versus traditional industries ▲face-to-face and non-face-to-face industries. Experts explain that groups able to respond to the COVID-19 era are recovering quickly from the economic shock, while those that cannot may face prolonged difficulties.

First, emerging countries may face a widening gap in economic recovery compared to advanced countries due to inadequate COVID-19 responses and limited access to cutting-edge technologies. Although the need for international cooperation in economics, finance, and public health is emphasized, insufficient international support for low-income countries and differentiated recovery speeds by country could lead to repeated beggar-thy-neighbor policies, escalating conflicts.

The International Monetary Fund (IMF) has urged, "The international community must make greater efforts to ensure equitable and universal access to vaccines and the internet for low-income countries."

Disparities based on income and education levels are also problematic. The longer inequality persists, the greater the dissatisfaction among groups that do not experience economic recovery, which could undermine social stability due to resulting conflicts. The WSJ pointed out, "(Conflicts caused by inequality) could ripple through the entire economy over the medium to long term," adding, "Even if the economy recovers to pre-COVID-19 levels, accelerated digitalization may make it difficult for low-wage vulnerable groups to regain their original jobs, potentially expanding social inequality."

The prolonged low-interest-rate trend caused by COVID-19 has also led to a surge in asset prices, exacerbating problems. The Economist reported, "Unlike the 2008 financial crisis, the contrast between high asset prices and a fragile economy may provoke public anger and widespread social discontent, potentially heightening populism."

This content was produced with the assistance of AI translation services.