South African households got poorer over the last quarter, despite the easing of lockdown restrictions to level 1, bringing the country as close to normal as can be during a global pandemic.
The latest Momentum/Unisa Household Wealth Index shows that even though South Africa staged a ‘stellar recovery’ in the second quarter of the year – as lockdown restrictions eased and people returned to work – this momentum didn’t carry through to the third quarter, where net wealth stagnated.
Households experienced a tumultuous four months between March 2020 and June 2020, during which their nerves were challenged by a real decrease of R773.6 billion in the real value of their net wealth during Q1 2020, followed by the strong recovery in Q2 2020.
The real value of household net wealth increased by R719.5 billion in Q2. However, in Q3 it declined by R2.3 billion.
While the decline is relatively small, it stunted progress to having wealth return to pre-Covid-19 levels.
The decline in net wealth can be ascribed to a decrease in the real value of households’ pension funds and investments, the researchers said. This was partly offset by a decrease in the real value of their outstanding debt.
Household Net Wealth
Momentum-Unisa estimates that the real value of household net wealth decreased slightly by R2.3 billion, to R7 505.0 billion in Q3 2020 from R7 507.3 billion at the end of Q2 2020.
“Household net wealth remained relatively stable throughout Q3 2020 following a very volatile period throughout the first half of the year, during which households first suffered stress from the sharp decrease in the real value of their assets during Q1 2020, where after they experienced relief when such asset values recovered during Q2 2020,” the researchers said.
“However, the real value of households’ net wealth has not yet recovered fully to pre-pandemic levels. It was R56.4 billion less than at the end of Q4 2019. The good news, however, is that it was R70.6 billion more than a year ago (Q3 2019).”
The relative stability in household wealth during Q3 2020 can be ascribed to the gradual opening of economies globally, as well as positive news that a Covid-19 vaccine might be available by the end of 2020 or beginning of 2021.
Momentum-Unisa estimated the real value of household assets at R8 945.4 billion (at the end of Q3 2020). It was an estimated R5.2 billion lower than at the end of Q2 2020.
In contrast to Q2 2020, when financial assets were the main driver of the recovery in the real value of household assets, non-financial assets increased during Q3 2020, while financial assets declined marginally.
The real value of non-financial assets is estimated to have increased by R28.8 billion in Q3 2020. The real value of household residential assets increased by R8.7 billion, that of durable goods by R7.8 billion and other non-financial assets by R12.4 billion.
In the financial assets category, the real value of deposits continued to increase.
“This is typical behaviour of consumers, resulting from fear of another ‘hard’ Covid-19 lockdown and possible job losses,” the researchers said. “Many households saved rather than spend, while also moving their assets from risky to safer asset classes.”
At the same time, the real value of both pension funds and other investments decreased. However, the decrease was marginal and mainly impacted by a second wave of Corvid-19 infections in specifically Europe.
“A new round of lockdowns contributed to financial markets declining worldwide. This had a negative impact on the real value of households’ pension fund and investment values,” they said.
In terms of liabilities, the picture is slightly more positive, with the real value of households’ outstanding debt decreasing by another R2.9 billion in Q3 2020, following a decrease of R12.8 billion in Q2 2020.
The decrease in real terms was caused by consumer price inflation increasing faster than the uptake of new debt, the researchers said.
Momentum-Unisa estimated the real value of households’ outstanding liabilities at R1 440.3 billion at the end of Q3 2020. The real value of mortgages decreased by R1.3 billion and that of other credit and accounts by an estimated R1.6 billion.
Looking ahead, Momentum-Unisa said that indications are that the real value of household wealth will increase in Q4 2020.
“Two opposing forces are driving asset values – and at times – are neutralising each other. However, it seems as if the positive influence of a Covid-19 vaccine on financial markets is outweighing the negative impact of harder lockdowns in many parts of the world . For now.”