Dynamics of the impact of COVID-19 on the economic activity of Peru

Abstract

Background

The COVID-19 virus impacts human health and the world economy, causing in Peru, more than 800 thousand infected and a strong recession expressed in a drop of -12% in its economic growth rate for 2020. In this context, the objective of the study is to analyze the dynamics of the short-term behavior of economic activity, as well as to explain the causal relationships in a Pandemic context based on the basic number of spread (R _e) of COVID-19 per day.

Methods

An Autoregressive Distributed Lags (ARDL) model was used.

Results

A negative and statistically significant impact of the COVID-19 shock was found on the level of economic activity and a long-term Cointegration relationship with an error correction model (CEM), with the expected sign and statistically significant at 1%.

Conclusion

The Pandemic has behaved as a systemic shock of supply and aggregate demand at the macroeconomic level, which together have an impact on the recession or level of economic activity. The authors propose changing public health policy from an indiscriminate suppression strategy to a targeted, effective and intelligent mitigation strategy that minimizes the risk of human life costs and socioeconomic costs, in a context of uncertainty about the end of the Pandemic and complemented by economic, fiscal and monetary policies that mitigate the economic recession, considering the underlying structural characteristics of the Peruvian economy.