Economists seem to enjoy describing economic commentary with letters. There’s the L-shaped recovery, a steep decline followed by long periods with very little growth. Or the classic V-shaped recovery, in which the economy quickly bounces back to its baseline. But the recession caused by the pandemic? That’s going to look a lot more like the letter K, says Alberta Central’s Chief Economist Charles St-Arnaud.
A K-shaped recovery is characterized by increasing divergence between the outcomes for different groups within the economy. In other words, some industries are growing while others are not. While it is normal to have some sectors recover more quickly than others after a recession, the scale of the downtown and the sectors affected in this recession make it unique.
Typically, recessions begin in the manufacturing sector. Producers lower production in response to weakening demand and rising inventory. That results in layoffs, which leads to weaker consumption and economic activity.
However the COVID-19 downturn was triggered by a drop in the service sector that resulted in mass layoffs. The lockdowns in many countries also contributed to a generalized weakness that spread to other industries. With supply chain disruptions and restrictions on activities, most sectors saw a sharp decrease in employment.
Now we’re seeing some industries that are recovering quickly (V-shaped recovery) such as agriculture, wholesale trade, retail trade, finance and insurance, and real estate. We’re also seeing some industries that are struggling (L-shaped recovery) such as natural resources, transport and warehousing, business support services, art, entertainment and recreation and accommodation and food services.
Not all recovery is equal
The sectors that are struggling with slower recoveries employ a significant proportion of part-time workers, women and young people. The wages in these hardest-hit industries also tend to be lower than the rest of the economy, so those workers who are most likely to lose some or all of their employment are also the people who may not have large savings to fall back on.
Given Alberta’s resource-reliant economy, past recessions have disproportionally affected men in the province, while this one has significantly impacted women. Across Canada, women’s labour force participation rate is 0.8% lower than before the pandemic, meaning that nearly half a million women have left the labour force because of the pandemic. And employment for those aged 15 to 25 is more than 10% below pre-COVID levels. There will likely be a long-term impact on those workers are they are held back financially and professionally.
How credit unions can help
Credit unions believe in looking out for each other, and your local credit union can help you with financial advice, competitive rates on loans, low fee accounts, financial literacy programs and more.
For a full list of federal and provincial COVID-19 financial relief programs, click here.
The information in this post is found in the 2021 Alberta Central Economic Outlook. To read the full document, click here.