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Consumer expectations, natural disasters, and stock market participation
We quantify consumers’ expectations about natural disasters in an international survey. Consumers across several countries expect the likelihood of natural disasters to increase over the next few decades. What’s more, national differences in disaster expectations correlate with the heterogenous risk exposure of individual countries. Finally, we show that for high-income consumers, higher subjective disaster expectations correlate with a lower likelihood of stock market partic-ipation. This may raise the demand for safe assets and potentially weigh on the natural rate of interest in the future.
Key messages
Why is this important?
Natural disasters are one of the most salient features of climate change. Subjective expectations over the likelihood of such disasters in the future are an important driver of personal savings decisions. Following insights from the economic literature, as consumers expect costly natural disasters to be more likely, they choose to build up precautionary savings and move towards safer assets less exposed to the economic consequences of potential natural disasters. Both factors may increase the demand for safe assets and lower the natural rate of interest, which is the risk-free interest rate that is consistent with stable inflation and output at its potential.
"On average, European survey respondents expect a 20% chance of a major natural disaster in 2030. Over the next few decades, consumers expect the likelihood of natural disasters to increase."
Main chart
Consumers expect natural disasters to become more likely
Note:
The chart displays average disaster probability as Huber robust and survey weighted mean on the vertical axis. The horizontal axis represents the time horizon of the survey question. 2023 refers to the “next 12 months” question.
Source:
Morning Consult and own calculations.