Philippine economy

[ANALYSIS] Why the PH economy’s recovery will be K-shaped

JC Punongbayan

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[ANALYSIS] Why the PH economy’s recovery will be K-shaped

Illustration by Janina Malinis

A K-shaped recovery is a precipitous decline followed by diverging paths between different sectors of our economy

Looking back at the title of my first analysis piece in 2020, I now realize how naïve it turned out to be: “Can we sustain the stellar growth of the 2010s?

The answer, evidently, is no.

In just the first year of the 2020s, the Philippines faced its worst economic crisis since World War II. We’re in the middle of our first recession (sustained downturn) in nearly 3 decades. And you can say that the economic gains in the past 5 years have been erased. (READ: 7 charts that sum up how the PH economy endured 2020)

Still, the new year brings a new hope. But what shape will our economy’s recovery take? 

My bet is that it will be K-shaped. But what does that even mean? Is that good or bad?

Alphabet soup

Since the early days of the pandemic, economists have been pondering how the world’s economies might bounce back from the global recession. Using letters of the alphabet, they’ve taken turns describing how indicators like income growth might progress over time.

A V-shaped recovery, for instance, suggests a sharp downturn followed by a quick, strong upturn. A U-shaped recovery, meanwhile, suggests a longer rebound.

Others were thinking of an L-shaped recovery (a sheer drop followed by a flatlining) and a jagged W-shaped recovery (also called a “double-dip” recession). 

But by far the most interesting to me is a K-shaped recovery: a precipitous decline followed by diverging paths between different sectors of our economy. 

One such divergence might be between rich and poor: everyone suffers at first, but the rich recover far faster than the poor.

Or it could indicate a separation between sectors that can and cannot adapt to the new normal — say, between manufacturing and services, or between professionals and blue-collar workers.

Inequalities galore

What’s the shape of our crisis so far? 

Figure 1 shows the historic 16.9% drop of income growth in the 2nd quarter of last year. This was followed by a milder 11.5% drop in the 3rd quarter, and analysts expect an even tamer drop in the 4th quarter.

Our economy is still shrinking, but less and less.

If lockdowns continue to ease and vaccines are rolled out quickly, a V-shaped recovery could still be possible. 

But that’s a big if: the newly discovered COVID-19 variant might prompt further lockdowns, and the chances of inoculating most Filipinos this year are nil. 

Figure 1.

If you look at other indicators, signs of a K-shaped recovery are emerging.

Consider the gap between rich and poor. While the Philippine Stock Exchange Index nosedived last year, by end of December it was already 91% of its level in the previous year. 

The stock market, however, is a poor gauge of what’s happening to the economy at large. The nation’s total output is recovering far slower. And only a fourth of Filipinos had any savings at all by end of last year (another record low) — much less money to invest in the stock market. 

The plight of the poor is especially worrisome. The hunger rate rose to its highest level on record (nearly 1 in 3 Filipino households), and as many as 5.5 million people could have been pushed into poverty absent enough economic aid from government.

Consider as well the gaps between various other sectors of our economy. 

Figure 2 shows that except for two subsectors — electricity, steam, water, and waste management, as well as financial and insurance services — all sectors of the economy haven’t yet recovered by the third quarter of 2020. Other sectors have languished, notably hotels, restaurants, and other tourism-related businesses, as well as construction.

Figure 2. 

As for workers, Figure 3 shows that jobs have returned for skilled workers in agriculture, as well as professionals (many of whom adapted successfully with work from home arrangements). But most others, especially blue-collar workers, aren’t so lucky. 

Figure 3.

Figure 4 shows that the recovery has been kinder for employers and the self-employed, but not the rest of the labor force — especially people working in their families’ own farm or business.

Figure 4.

Take the jobs figures above with a grain of salt, though. The pandemic has pushed millions of Filipinos out of the labor force, and they’re neither counted among the ranks of the employed or the unemployed. 

There are various reasons for this. Many parents have been forced to give up working, stay at home, and look after the kids. Others have chosen to go back to studying amid the pandemic. 

Until millions of these displaced Filipinos are ready to work again, the economy’s recovery will continue to flag.

From rising star to sick man

There’s another sense where a K-shaped recovery might unfold: other ASEAN countries will recover faster, leaving us in the dust. 

In other words, ASEAN might see a K-shaped recovery, with the Philippines represented by the K’s last downward stroke.

Looking at income growth in Figure 5, Malaysia’s recovery, for instance, looks positively V-shaped compared to ours. Vietnam didn’t even enter into a recession at all, because of its prompt and effective pandemic response. (READ: Had Duterte acted earlier, PH economy would be safe to open by now)

Figure 5.

The Philippines is also lagging behind in terms of mobility. 

Figure 6 shows that Filipinos’ movements at retail and recreation areas, based on Google data, dropped the most in ASEAN. The trends are far more impressive in our neighbors, including Vietnam: after a quick dip in April (during their own nationwide lockdown) mobility quickly recovered.

In a bid to hasten our economy’s recovery, Bangko Sentral ng Pilipinas Governor Benjamin Diokno implored Filipinos to “learn to live with the virus” and stop “cowering and hiding in our residences.”

But consumer confidence is earned, not demanded. And you can’t blame our people if they feel still unsafe to go out, given the government’s bumbling pandemic response.

Figure 6.

Regardless of the precise shape of ASEAN’s recovery, it’s becoming more and more obvious we’re being left behind in the region. 

As if on cue, Moody’s Analytics came out with a damning report saying that the Philippine economy will likely be the last country to recover in Asia-Pacific (not just ASEAN), and that such recovery won’t occur until the end of 2022.

From the region’s rising star, we’re back to being its sick man.

Rock bottom

At first I was skeptical of a K-shaped recovery. To me it sounded nothing more than a gimmicky concept. 

But on second thought, it makes perfect sense. Not only will many Filipinos be left behind in our country, but our country will also be left behind in the region. 

Government has already started to spin this. Presidential Spokesperson Harry Roque said, in response to the Moody’s report, that although we’ve hit rock bottom “the only way to go is up.”

But getting out of rock bottom won’t be as easy as they think. And had they done their job well, we need not have hit rock bottom in the first place. –

JC Punongbayan is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for He is also co-founder of and co-host of Usapang Econ Podcast.