A stock market crash will adversely affect the personal consumption of a nation which is a core component of Gross Domestic Product (GDP).
This was disclosed in a report published in the CBN statistical bulletin by authors Shafiu Ibrahim Abdullahi and Mukhtar Shuaibu.
According to the report, people spend more money during bull markets because they are earning more money as a result of a robust economy and because they perceive an increase in wealth as their portfolios increase in value.
Furthermore, the report stated that the economy performs worse, and expenditure declines during bear markets.
What the Report is saying
The report stated that if the stock market reduces as in the case of a crash then household consumption would also decline.
The report said, “Findings show a positive and statistically significant relationship between household consumption and stock market capitalization but a statistically insignificant relationship between household consumption and financial development.“
“The variance decomposition analysis shows stock market capitalization is a good predictor of household consumption. The results of Granger causality test show stock market Granger caused both household consumption and financial development,” the report added
The authors recommended that more attention needs to be paid to the stock market given its importance to consumption.
“The study recommends effective monitoring of stock market performance as predictor of household consumption in Nigeria. Relevant authorities should continue to put their eyes on the stock exchange, as negative performance would mean that households that invested their savings in the market could be losing a source of their income for future consumption.”
What you should know
- The NGX ASI closed at 51,803.98 points to reflect a decline of 0.31% from the previous trading day and a Year-to-Date (YTD) return of 21.27%.
- At the close of the market on Tuesday, the 28th of June 2022, the stock exchange market value currently stands at N27.93 trillion at the end of the trading day.
- Although the market capitalization declined by N85.65 billion yesterday, the Nigeria stock market is still positive on YTD terms.
- Hence, no sharp consumption decline is expected it the NGX maintains this pace of growth.
