A decline in the household financial resilience in the second quarter is cause for concern considering the rise in GDP over the period, the Altron FinTech Household Resilience Index (AFHRI) released yesterday showed.
It reveals consumers were less able to take on credit in spite of an improving economy over the period.
The latest quarterly reading of 109.2 is marginally lower than 109.9 in the first quarter of 2022, but 1.3% lower than a year ago.
“The quarter-on-quarter decline of 0.6% in index value is a cause for concern, as this is substantially worse than GDP, which increased almost 4% in real terms between the first and second quarters, deflated of course by the consumer price index,” said the compiler of the index, economic adviser to the Optimum Investment Group, Dr Roelof Botha.
“In recent months, the mood among consumers has become decidedly downbeat, due mainly to high fuel prices, rising inflation, higher interest rates and the regular occurrence of electricity load shedding. It is unlikely the AFHRI will reverse the latest downward trend in the third quarter,” he said.
He said due to the strong positive correlation between private-sector credit extension and GDP growth, it had become urgent for the government to reconsider the undue regulatory burden on the formal micro finance sector.
“Unless lower income groups are allowed easier access to credit, the pace of employment creation in South Africa will remain muted,” he said.
“The performance of the index has been lagging behind the economy as a whole, especially since 2020,” Botha said in a telephone interview.
He said a key element in the index, private and public sector remuneration, had surprisingly declined as the Statistics SA’s Labour Force survey showed some 400 000 formal and 200 000 informal jobs were created in the first half of the year.
He said, however, the increase in employment had likely come at the end of the quarter and would be reflected in later AFHRI data, while many people were also likely to have accepted lower paid jobs after losing employment during the Covid pandemic.
The AFHRI’s dip in the second quarter comes after it had remained stable at a new high for three successive quarters.
Botha said an encouraging feature of the latest AFHRI included a consistent improvement in the disposable income of households, which is one of only three out of 20 indicators that had shown growth over all four periods analysed.
He said the AFHRI trend line showed a similarity with other key indicators, including GDP and retail trade sales.
The AFHRI’s marginal decline was in line with the South Africa Reserve Bank’s leading composite business cycle, which also retreated modestly from an all-time high in the first quarter of the year. Several other business and consumer confidence indicators have also come under pressure as a result of rising inflation, higher interest rates and heightened geo-political uncertainty.
Geo-political factors included the war in Ukraine, Europe’s energy crisis, a struggling Chinese economy and indications of looming recession in several high-income countries.
On a year-on-year basis, three of the 20 indicators recorded declines of more than 10%. All three related to lower levels of lump-sum payments received from long-term insurers and pension funds, which experienced abnormal peaks during the pandemic and should start normalising in the next two quarters.
Although the ratio of household income to debt costs had improved considerably since 2020, negative quarter-on-quarter and year-on-year readings were recorded during the second quarter.
BUSINESS REPORT