The latest Altron FinTech Household Resilience Index shows positive features, including significant employment gains in the public and private sectors and a meaningful increase in total household disposable income. Of concern, however, the report states is that household credit extension was lower during the third quarter of 2022 than 10 years ago.
The latest Household Resilience Index, which covers the third quarter of 2022, took a slight dip in the first and second quarters of last year but has bounced back to a level of 109.8, marginally lower than the value in 2021.
In the third quarter of 2022, this value was unchanged from the previous quarter (110.5) and only marginally lower than the figure for the previous three quarters (110.9).
Since the launch of the index, the financial resilience of South African households has increased by 9.8% in real terms, the report stated. “The index has fully recovered from the downturn experienced during the Covid-19 pandemic.”
In recognition of the need for data that provides more clarity on the financial disposition of households in general, and their ability to cope with debt in particular, Altron FinTech commissioned well-known economist at the Optimum Investment Group, Dr Roelof Botha, to assist in designing this index.
In a media release, Botha stated that “against the background of positive real GDP growth during the third quarter of 2022, the quarter-on-quarter increase was not unexpected. Although the year-on-year Index value recorded a marginal decline of 0.2%, this does not constitute a cause for undue concern, but scrutiny of the trends for the different indicators reveals a more pronounced downward trend for indicators of household wealth.”
“Due to a traditional spike in the index during the fourth quarter of each year - due to the shopping boom associated with Black Friday and Christmas - it is useful to examine the four-year average trend,” the report added.
According to Botha, the most encouraging features of the latest data include the significant employment gains in both the public and private sectors of the economy, as well as a meaningful increase in total household disposable income. The latter has become a consistent trend, and the disposable income of households is one of only three indicators that has shown growth over all four periods analysed.
Botha said the index trend line shows broad similarity with a number of other key economic indicators, including GDP and retail trade sales. “It should be noted that employment and labour remuneration in the public and private sectors enjoy a relatively high weighting in the index, as these indicators represent the mainstay of the financial disposition of most households.”
Key conclusions of the report include:
Since the onset of the Covid-19 pandemic, the index lagged behind that of the economy as a whole, but only marginally so. During the third quarter of 2022, the index returned to the same level as the third quarter of 2019. Over this period, real GDP growth was only marginally better at 1.1%, a performance made possible in large part by record exports in 2021 and 2022.
A significant increase in employment in both the private and public sectors represented one of the major reasons for the continued stability in the financial resilience of households. The upward trend in new job creation continued unabated in the third quarter of 2022, with the total number of formal sector employment rising by more than one million during the first nine months of the year. Almost 235,000 new formal sector jobs were created between July and September 2022, with a total of 15.8m job posts filled from 14.3m a year ago.
The reciprocal of credit impairments by banks has made a welcome return to a positive contribution to the index, confirming the inherent stability of South Africa’s banking system and the lower default risk emanating from significant new job creation.
Although the ratio of household income to debt costs has improved considerably since pre-Covid, relatively high negative quarter-on-quarter and year-on-year readings were recorded during the third quarter. With interest rates likely to rise further during the first half of 2023, this indicator is expected to weigh on the index until the South African Reserve Bank reverses its unduly restrictive monetary policy stance.
The South African macro-economy remains in good shape, as witnessed, inter alia, by positive GDP growth in the third quarter, the resilience of the index, the strengthening of the rand exchange rate and record export earnings in 2022. It remains to be seen, however, whether the government can succeed in reversing the general downbeat mood amongst consumers, due mainly to the escalation of electricity rationing, decaying roads, high fuel prices, and higher inflation and interest rates.
A point of particular concern is the fact that household credit extension was lower during the third quarter of 2022 than ten years ago (in real terms). This is a clear indication that the high cost of credit and capital in South Africa is curtailing the country’s growth potential.
“Despite formidable obstacles to economic growth, it is highly likely that the AFHRI will continue its upward momentum during the fourth quarter, mainly as a result of the traditional spike in retail trade sales during November and December of each year,” Botha concluded.
BUSINESS REPORT