Bad news for households in South Africa

 ·16 Jan 2025

South African households are facing growing financial strain as household debt rose in late 2024, and expectations for interest rate relief in 2025 have dimmed.

According to the South African Reserve Bank’s (SARB) Quarterly Bulletin for the third quarter of 2024, seasonally adjusted nominal household debt increased as credit extended to households expanded across most categories.

This pushed household debt slightly higher as a percentage of nominal disposable income, from 62.1% in the second quarter to 62.2% in the third quarter.

Although the cost of servicing debt relative to disposable income remained steady at 9.1%, the overall debt burden continues to weigh heavily on consumers.

Spending patterns also reflected the economic pressures. While spending on essentials such as food, beverages, and medical products moderated, households saw increased outlays on utilities and petroleum products.

These included household fuel, power, and water.

Real spending on durable goods slowed to a mere 0.2% growth in the third quarter, down from a 1.0% increase in the second quarter, constrained by strict lending standards and persistently high borrowing costs.

Purchases of personal transport equipment and computers declined, and spending on furniture, household appliances, and other durable goods decelerated.

Semi-durable goods, including clothing and footwear, also saw slower spending growth, while expenditure on motorcar tyres and accessories continued to fall, albeit at a reduced rate.

Services spending painted a similar picture of restrained consumption. Real household expenditure on services grew by only 0.3% in the third quarter, compared to 1.3% in the previous quarter.

Slower spending on medical services and household services, combined with declines in transport and communication services, reflected cautious consumer behaviour.

However, spending on rent and recreational services remained steady, offering a small measure of stability amid broader declines.

Adding to the challenges, South Africa’s interest rate outlook has taken a hit, dampening hopes for significant relief in 2025.

Market sentiment shifted as traders reduced expectations for rate cuts, now pricing in only a single 25-basis-point reduction at the SARB’s monetary policy committee meeting in January 2025.

This adjustment reflects global economic conditions, including the US Federal Reserve’s slower approach to rates and the implications of US President-elect Donald Trump’s trade policies.

Marek Drimal, a strategist at Societe Generale in London, suggested that external financial conditions and market pressures could even delay the anticipated rate cut until March.

His outlook aligns with a more cautious stance than that of most economists, who had forecast two rate cuts in early 2025, bringing the repo rate to 7.25%.

SARB Governor Lesetja Kganyago underscored this cautious approach, stating that the monetary policy committee would avoid actions that might later prove destabilising.

“We should not be creating uncertainty by making moves that we would later regret,” he emphasised in a recent interview with CNBC Africa.

The combined impact of rising household debt and uncertain interest rate relief paints a challenging picture for South African households heading into 2025.

With borrowing costs remaining elevated and consumer spending subdued, many families will likely face continued financial pressures in the months ahead.


Read: Patience is key for South Africa

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