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Covid-19: industry level origins of changes in economic welfare

We provide an analysis of how the decline in aggregate UK economic welfare caused by Covid-19 is related to industry-level measures of economic activity. By exploiting data on asset prices, we perform our analysis in real time. We find significant asymmetry in the contribution of different industry sectors. We estimate that within the UK, the decline in the basic materials, consumer discretionary, energy, financials, and industrials sectors has contributed to a welfare decline equivalent to just under 20% of aggregate wealth. This has been partially offset by the health sector, which has increased welfare by an amount slightly below 5% of aggregate wealth, leading to an overall welfare decline of 15%. We use a modification of principal components analysis to show that the decline in excess equity returns during the period 1st Jan 2020 - 11 May 2020 has been driven by a factor related to uncertainty, to which only the health care sector has a negative exposure. Our results show that the Covid-19 shock can be understood as an uncertainty shock, to which different economic sectors have heterogeneous exposures.

Lead investigator:

Harjoat S. Bhamra


Imperial College Business School

Primary topic:

Health, physical & mental

Secondary topic:

Prices & interest rates

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Type of data being collected:

From private company

Unit of real-time data collection


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