South African households see slight income improvement, but challenges remain
Despite a slight improvement in household incomes in South Africa, challenges persist as disposable income continues to decline, driven by interest rate hikes and economic uncertainties. Picture: Ron AI
Image: Supplied
The financial position of South African households improved slightly in the fourth quarter, but real disposable income per person for 2024 continued its decline from 2022, when the interest rate raising cycle increased.
This was according to economist Dr Roelf Botha, who commented on the release on Tuesday of the Altron FinTech Household Resilience Index (AFHRI) for the fourth quarter of 2024.
He attributed the modest improvement to three 25 basis point cuts in the repo rate between September 2024 and January 2025, which lowered the prime overdraft rate to 11% from a record high of 11.75%. Consumers also benefited from year-end bonuses, two-pot pension payouts, and temporary jobs in the holiday period, particularly in the tourism and retail sectors.
'The data clearly shows that while we're seeing some recovery, households remain under significant financial strain following this period of high interest rates. The marginal interest-rate cuts provided some small relief, but more substantial monetary policy easing is required to meaningfully improve household financial resilience, especially in the face of the diminished global growth figures anticipated this year," said Altron FinTech MD Johan Gellatly.
Dr Botha said households are not out of the woods yet. At the latest meeting of the Monetary Policy Committee (MPC) of the Reserve Bank, the rate-cutting cycle was halted, which would prevent the debt cost burden of households from dropping to a level that would encourage a more permanent recovery of household expenditure – the key driver of aggregate demand in the economy.
The AFHRI's four-quarter average, which eliminates seasonality, had started to recover but has barely remained above the level recorded at the end of 2021, when the MPC started its relentless cycle of interest rate increases, despite lacklustre GDP growth and an obvious absence of excess demand in the economy, said Dr Botha.
The ratio of household debt costs to disposable incomes declined from 9.1% to 8.9%, but this also remained significantly higher than the 6.8% level in 2021.
'The cost of credit (and of capital formation) in the South African economy remains 31% higher than four years ago – one of the main reasons for the lethargic economic growth rate that moved in tandem with each increase in the repo rate,' said Botha.
'The decision by the MPC at its March policy meeting not to lower the repo rate further is regrettable, as several key economic indicators continue to show weakness, with business confidence having retracted since the beginning of the year,' he said.
The S&P Global Purchasing Managers' Index for South Africa fell to 47.4 in January 2025, down from 49.9 in December, marking the sharpest contraction in the private sector since July 2021.
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