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Business News of Wednesday, 29 June 2022

Source: www.nairametrics.com

Stock market crash would reduce consumption in Nigeria – Report

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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.

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.”