Things are looking up for households in South Africa
South African households are on a stronger financial footing heading into the last few months of the year, with economists optimistic that pressure will continue to ease into 2025.
The South African Reserve Bank’s (SARB’s) quarterly bulletin for the second quarter of 2024 shows that household consumption expenditure (HCE) rose over the past three months, reversing the contraction seen at the start of the year.
HCE makes up around two-thirds of South Africa’s GDP and is an indicator of households’ financial health—particularly their ability to finance debt and disposable income.
Notably, the turn into positive territory was supported by growth in the real disposable income of households, with consumers having more money to spend.
Increases in spending were recorded in all expenditure categories, specifically, “spending on semi-durable goods and services reverted to an increase in the second quarter, while real outlays on durable and non-durable goods increased further”, according to the SARB.
According to economists at Nedbank, household finances improved in Q2 2024, with real personal disposable income (PDI) growing by 0.9% quarter-on-quarter, up from a contraction of 0.1% in Q1.
“Real compensation of employees rose by 0.1% qoq, after rebounding by 1.5% in Q1 following three straight quarters of contraction. Other income also bounced back, growing by around 3% after declining sharply in Q1.
“Undoubtedly, the recovery in real PDI drove the rebound in consumer spending over the quarter,” the bank said.
Households’ lift in nominal disposable income also outpaced that of household debt.
Household debt as a percentage of nominal disposable income decelerated to 62.2% from 63.0% recorded in Q1.24, while the cost of servicing debt, calculated as a percentage of disposable income, eased to 9.1% from 9.2% previously.
Net wealth rose to 393% of PDI in Q2, up from 389% in Q1, and the market value of assets rose by more than liabilities.
The boost to household assets mainly came from the rebound in share prices, while growth in house prices remained subdued, Nedbank said.
However, while the data showed a positive turn for disposable income, it was not without problems.
Specifically, the drawdown of savings continued and deepened. The personal savings rate (savings to PDI) deteriorated to -1.3% in Q2 from -0.8% in Q1.
Nedbank said the numbers show that consumers are “not entirely out of the woods yet”, but renewed income growth and contained borrowing have placed households on a slightly firmer financial footing.
“Household finances will likely strengthen further in the year’s second half and throughout 2025. With inflation forecast to remain subdued around the SARB’s 4.5% target, real personal disposable income should recover further,” it said.
At the same time, falling interest rates should systematically reduce debt service costs, gradually freeing more funds for discretionary spending.
The SARB’s Monetary Policy Committee cut rates in September, ending a 16-month streak of interest rates being at 15-year highs.
While the 25 basis point cut was relatively small, economists anticipate that another cut will follow in the last meeting for 2024 in November and even more in the first half of 2025.
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