Short-term Impact of COVID-19 on Consumption Spending and Its Underlying Mechanisms: Evidence from Singapore

Abstract

We examine the short-term impact of COVID-19 on consumption spending and its underlying mechanisms, using individual-level monthly panel data from Singapore. Although Singapore’s case-fatality rate is one of the lowest in the world (0.05%), we find that the COVID-19 pandemic reduced the consumption spending by almost a quarter during its peak, with a larger response from households with above-median wealth. We show that the reduction in consumption spending is associated with risk avoidance behavior, nationwide lockdown policy, heightened economic uncertainty, and reduced income. Unlike typical economic crises, our back-of-envelope calculation shows that income reduction explains about a third of the decline in consumption spending among households that have experienced income losses during the pandemic, suggesting that the income channel is less likely to be the driving factor for the aggregate consumption decline. In addition, we find a substantial increase in monthly savings among households without income loss, suggesting a substantial rebound in consumption spending after the lifting of the lockdown. Early results from June 2020 confirm this conjecture as we find that consumption spending rebounded by about 10 percentage points during this month.

Keywords: COVID-19 pandemic, consumption spending, savings, mobility, uncertainty, monthly panel data

JEL Classification: E2, I12, H2, J01