The economic impacts of COVID-19 in Brazil based on an interregional CGE approach

Abstract

This study projects the economic impacts of COVID-19 outbreak on the Brazilian economy using a dynamic interregional computable general equilibrium model. We considered two scenarios. The first scenario has two channels of transmission over the economic system: a negative shock of labour supply due to the rates of morbidity and mortality caused by the pandemic, and a temporary shutdown of nonessential economic activities. The second scenario adds to the first the effects of the government fiscal package adopted to counteract the effects of COVID-19 on the economy. Furthermore, in both scenarios, a sensitive analysis related to the temporality of the shutdown is considered by assuming 3 and 6 months of shutdown. The results indicate a reduction of 3.78% in the national GDP growth rate in Scenario 1 and a reduction of 0.48% in Scenario 2, in 2020, with 3 months of shutdown. With 6 months, the reduction would be greater, 10.90% and 7.64% in Scenarios 1 and 2, respectively. Thus, the government fiscal stimulus considered in this study partially mitigates the reduction in GDP projected under the COVID-19 outbreak. The study also presents sectoral projections at the national and state levels. The estimates indicate reductions in the GDP of most of Brazilian states in both scenarios.