Covid-19 and G-Shaped Recovery: A New Form of Recovery Shape

Abstract

The uneven recovery in the world economy since the start of Covid-19 wreaking havoc in 2020 has given us a new shape in economic development: the K-shape. As an alternative to the K-shape, we found the possibility of an even worse development: the G-shape. Indonesia, which experienced the deceleration of its economic growth in the pre-pandemic period, can struggle with a G-shaped recovery. This paper evaluates this possibility by comparing the country to other emerging economies. This study uses 10 economic performance indicators to determine the possibility of a G-shaped recovery in an economy, which represent the demand side, supply side, monetary policy, fiscal policy, health and institutional quality (credit, labor, Total Factor of Productivity, Human Development Index, regulatory quality, CA balance to GDP, current health expenditure, internet bandwidth, debt to GDP, and economic openness). The research sample covers 33 countries. Among them, 7 countries with the highest possibility of G-Shaped economic development were identified: Pakistan, Mexico, Egypt, South Africa, Nigeria, Indonesia, and Brazil. Several counties in samples, including Pakistan, Mexico, Egypt, South Africa, Nigeria, Indonesia, and Brazil, are trapped in long stagnation. The regression result shows a positive relationship between each dependent variable and the GDP, except for economic openness. From the results, the Human Development Index has the highest coefficient among the other independent variables. This paper also employed the Computable General Equilibrium simulation analysis model to project Indonesian economic growth, which shows Indonesia's possibility of being trapped in the G-shaped recovery.