South Africans are digging themselves into a hole

 ·2 Apr 2024

Household finances in South Africa are in a sorrowful state, with many not having enough savings to survive shocks.

While income is increasing marginally, household debt remains high – and in turn, savings are in decline as South Africans look for what little there is to cover costs.

According to Nedbank’s analysis of the South African Reserve Bank’s (SARB’s) latest quarterly bulletin, household finances were somewhat stable in Q4 2023.

Real disposable income (PDI) jumped by 0.1% qoq (or an annualised 0.4% qoq) after dropping over the last three quarters.

“The boost came from a rebound in other income sources (i.e. profits, dividends, rents and interest), while compensation of employees (COE) remained under pressure,” said Nedbank.

Nominal compensation grew by 0.5% qoq and 6.8% yoy in Q4 2023 but dropped by 0.9% qoq, albeit still up 1.3% yoy, in real or inflation-adjusted terms.

The drop was mainly due to the impact of lower employment, with the quarterly employment survey (QES) showing total employment dropped by 1.8% qoq in Q4.

Household debt metrics were mixed, with the ratio of household debt to PDI easing from 62.4% in Q3 to 62.3% in Q4, as the increase in nominal PDI barely exceeded that in household debt.

“In contrast, the ratio of debt service costs to PDI remained unchanged at an upwardly revised and onerous 9% (previously 8.9%), mainly reflecting the impact of the persistent rise in interest rates since November 2021,” Nedbank said.

“Consumers remained reluctant to borrow and spend, with debt service costs consuming a sizeable share of household income.”

“Growth in household debt slowed noticeably over the final quarter, while consumers increased spending by a modest 0.2% qoq.”

Household savings also dropped further, with the personal savings rate remaining negative for the fourth quarter at 1.4%.

“The depletion of savings leaves households more vulnerable to any adverse turn in domestic financial conditions.”

“As a result, consumer confidence remains weak, credit growth is slowing, and consumers are keeping spending in check.”

Household net wealth, on the other hand, improved slightly, driven by higher valuations of total assets compared to liabilities.

What lies ahead

Looking ahead, will likely ease in the second half of 2024.

Although the outlook for real disposable income remains weak, the higher wage and salary settlements negotiated for the year and the predicted drop in inflation later this year should life real incomes near the end of the year.

“However, the lack of tax relief means that a significant portion of individuals’ wage increases will be consumed by taxes, partially containing the boost to disposable income.”

“Even more concerningly, the fall in employment in Q4 2023 may only be the beginning of a widespread restructuring drive within the private sector aimed at reducing costs in a bid to restore profitability badly eroded during last year.”

“Agriculture, mining, and manufacturing have already announced significant retrenchments in recent months, and other industries may follow unless the economy turns the corner.”

Higher interest rates will also keep debt servicing costs high, which will force households to make challenging decisions.

Although economists predict that the SARB will start cutting rates in Q3 2024, Governor Lesetja Kganyago said that inflation risks remain on the upside.

“If the SARB only reduces interest rates much later this year, the pressure on households will probably intensify, and the anticipated recovery in consumer confidence, borrowing and spending will be delayed to near the end of the year.”


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