Tendencia Económica. No. 205

Abstract

The expansion of COVID-19 has caused a disruption in the country's economic activity, because of the measures adopted to flatten the contagion curve. In a scenario of high uncertainty associated with the duration of the pandemic, as well as its economic and social impact, economic authorities are faced with challenges related to the nature and degree of responses to mitigate the negative effects of the crisis. Responding to the difficult situation, this edition of Tendencia Económica presents an estimate of the health costs associated with the expansion of the pandemic, finding that the economic valuation of the cost in health goes from a maximum of 392 billion, or 36.9% of GDP, in a scenario where no measures are taken, to a minimum of 17 billion or 1.6% of GDP in a scenario of social distancing of 75%. On the other hand, the document presents an estimate of the economic costs associated with generalized quarantine scenarios. The results indicate that in a scenario where the operation of the different economic sectors is reduced by 37% and 49% as a result of quarantine, the associated economic cost is in the range of 48 to 65 billion pesos (4.5% to 6.1% of GDP) for a one-month quarantine, 94 to 125 billion pesos (8.9% to 11.8% of GDP) for a two-month quarantine, and 138 to 182 billion pesos (13.0% to 17.1% of GDP) for a three-month quarantine.

Colombia is facing two shocks that are affecting both its economy and its health care system. The first shock is related to the expansion of the COVID-19, which in economic matters has generated both supply and demand shocks. On the other hand, in health matters, the expansion of COVID-19 has caused thousands of deaths and infections worldwide, which has tested the capacity of health systems. The second shock is related to the oil war between Saudi Arabia and Russia, which has generated changes in international capital flows and exchange rate depreciations. To deal with this crisis, both the national government and the central bank (Banco de la República) have adopted a series of measures to mitigate the risks associated with the economic impacts of this situation on the country. This document will address the measures taken by the Banco de la República as the monetary and exchange rate policy authority and the measures taken by some of its regional counterparts.