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

37 Pages Posted: 28 May 2020 Last revised: 26 Aug 2020

See all articles by Seonghoon Kim

Seonghoon Kim

Singapore Management University

Kanghyock Koh

Korea University - Department of Economics

Xuan Zhang

Singapore Management University

Date Written: June 9, 2020

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

Suggested Citation

Kim, Seonghoon and Koh, Kanghyock and Zhang, Xuan, Short-term Impact of COVID-19 on Consumption Spending and Its Underlying Mechanisms: Evidence from Singapore (June 9, 2020). Available at SSRN: https://ssrn.com/abstract=3612738 or http://dx.doi.org/10.2139/ssrn.3612738

Seonghoon Kim

Singapore Management University ( email )

90 Stamford Road
178903
Singapore
6568085465 (Phone)

Kanghyock Koh (Contact Author)

Korea University - Department of Economics ( email )

145 Anam-ro Seongbuk-gu
Seoul, Seoul 02841
Korea, Republic of (South Korea)

Xuan Zhang

Singapore Management University ( email )

90 Stamford Road
178903
Singapore

HOME PAGE: http://https://www.smu.edu.sg/faculty/profile/161846/ZHANG-Xuan

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