This time the recovery will be in the form of a “K”

During the early days of the coronavirus pandemic, the focus for forecasters was not so much whether the economy would recover, but how which way would you do it.

The most optimistic analysts expected a “V” shaped recovery, while others foresaw a “swoosh” shaped recovery with a slower.



Those who believed that the pain was here to stay believed that a long “U” was most likely, and the more bearish were betting long-term bearish trends as of “L”. However, what appears to have occurred is none of the above, but rather a “K” shaped recovery, in which some traditional sectors are in a structural downtrend, as well as consequence of Covid-19 or for any specific reason of the Company.



The sectors that recover most quickly are technology, pharmaceuticals, online commerce, agriculture and food (which have been essential activities and very resilient to crises). On the other hand, the sectors that will take longer to recover are those related to tourism, travel, hotels, restaurants, small businesses, etc. The real estate sector will also be affected as the trend to work from home will reduce the demand for office space in cities. 25% of shops and bars are going to close their doors permanently, so many commercial premises will be empty. Likewise, the demand for residences with gardens and terraces on the outskirts of cities will increase, while the value of real estate in the center of cities will depreciate as it is less attractive as a habitual residence and as international tourism is reduced.

For some, the pandemic may have been a great opportunity to power the transformation of the world economy, precipitating the disruptive transformations that were unfolding. They see the pandemic as a catalyst that has accelerated in 5 or 6 years the technological changes that the economy needed, attracting the strong investments that are necessary and in a scenario of abundant cheap money. We have this money because of the action of the Central Banks, which have injected huge amounts of money at a cost close to zero and because of the financial facilities that the Governments have offered to companies and individuals.

Last week Fed Chairman Jerome Powell announced his intention to maintain zero rates, also reiterating the strategy of linking zero rates to the goals of maximizing employment and allowing inflation higher than 2% in order to compensate for periods of low inflation such as those of recent years. Investors took Powell’s message as an anticipation of more stimulus, so the message was more powerful than any new tool Powell might have announced.

In some cases things have changed drastically and some companies are realizing that it is not going to be like before. Some examples of areas that are changing drastically: use and demand for Cloud services, growth of telemedicine reserving the physical visit to the doctor for diagnosis and operations, streaming entertainment instead of going to the cinema or theater, etc.

It is time to reflect on how the environment has changed and adapt our strategy to be able to take advantage of the opportunities and even more, to avoid succumbing to the changes that lie ahead. As Bill Gates says, “We always overestimate the changes that will happen in the next two years, but we underestimate the changes that will come in the next 10 years.”

Carlos Navarro Enguídanos, analyst at Vinca Capital Corporate Finance