By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The South African Reserve Bank's (SARB) 4Q24 Quarterly Bulletin, released on 27 March, provides fresh insights into consumer finances. In this piece, we unpack key trends in household balance sheets, highlighting improving real wages, cautious debt management, and rising net wealth.
Labour market gains support real wage growth
While unemployment remains high, the data indicates some positive developments for workers, driven by lower inflation and faster wage growth. The total wage bill grew by 1.0% quarter-on-quarter (q/q), while inflation remained exceptionally low at 0.03% over the same period. Additionally, non-labour income increased by 1.6% q/q, further supporting household finances. Looking ahead, wage growth prospects appear promising. As of 1Q25, surveyed expectations indicate an average salary increase of 4.5% for 2025, compared to our inflation forecast of 3.7%. This suggests that real-wage recovery will continue, helping to offset the potential increase in the tax burden proposed in the Budget.
Improved debt management boosts discretionary income
A cautious approach to debt accumulation persists. Household debt as a percentage of disposable income edged lower by 0.4-percentage points (ppts), from 62.4% to 62.0%, as household disposable income grew at a faster pace than debt. Early signs also indicate a slowdown in debt accumulation within the non-bank sector, potentially reflecting the impact of two-pot pension withdrawals-either through debt repayment or reduced demand for new consumption-driven credit.
Debt-servicing costs as a percentage of disposable income eased by 0.2ppts, from 9.1% to 8.9%, reflecting both slower debt accumulation and lower interest rates. This marks the lowest level since 2Q23. Moderating debt stock, lower interest rates, and faster income growth suggest an increase in consumer discretionary income going into 2025. We expect debt-servicing costs to plateau in the coming months as borrowing costs continue to decline.
Rising net wealth provides financial buffer, but disparities persist
Household net wealth increased in 4Q24 as the market value of total assets outpaced the growth of liabilities. However, the ratio of net wealth to nominal disposable income decreased slightly due to the marginally faster increase in nominal disposable income compared to net wealth. On an annual basis, this ratio improved in 2024, reflecting overall financial gains among households.
Overall, households are managing their debt burden effectively, as evidenced by the declining debt-to-disposable income ratio. The rising value of housing stock and growing net wealth suggest that households are building assets, providing a financial cushion against economic shocks. These trends point to a degree of financial stability that could support consumer spending and broader economic activity in the coming quarters. However, the reality is that significant disparities persist across income groups, highlighting an uneven financial landscape.
Week in review
The FNB/BER Consumer Confidence Index (CCI) plummeted to -20 index points in1Q25 from -6 points in 4Q24. Given the timing of the survey, the 14-point drop was influenced by the 2ppts VAT increases that formed part of the initial budget. The tabled VAT increase has been reduced, and alongside the broadening of zero-rated food items and above-inflation social grant increases, this could provide support for improved sentiment in lower-income households. That said, higher-income groups still face bracket-creep as well as worsened relations between South Africa and the United States. Since higher-income households are more sensitive to policy issues, these developments may continue to weigh on their sentiment. Understandably, a higher tax burden and trade distortions should weigh on economic activity and household finances. In line with this, households have become more pessimistic on the outlook and still do not consider the current time as appropriate for purchasing durable goods.
The leading business cycle indicator increased by 0.9% m/m in January, following a 1.5% drop in December (revised from 1.8%). The increase was supported by four out of the ten available constituent variables, led by accelerated trend growth in vehicle sales and an increase in building plan approvals. Unfortunately, weaker employment prospects continued to weigh on the economic outlook. Compared to the year before, the leading indicator was 3.4% higher, rising from 2.1% previously, marking the tenth consecutive month of annual growth. This aligns with our view of an economic upturn, with improved growth outcomes over the medium term. That said, downside risks are material.
Employment in the formal non-agricultural sectors of the economy, as reflected in the Quarterly Employment Survey (QES), increased by 12 000 jobs, or 0.1% q/q in 4Q24. Most of the jobs created were in trade, while the community services sector continued to shed jobs. Compared to 4Q23, over 90 000 jobs (0.8%) have been lost but over 330 000 jobs have been added since 4Q19. Total gross earnings increased by 6.1% q/q and 3.6% y/y. Notably, earnings were 30.0% higher than 4Q19 levels,beating inflation of 26.9%. We anticipate that growth could approach 2% over the next couple of years, highlighting gradual improvements in the operating environment. The emphasis on infrastructure and improved service delivery in the budget is encouraging, but implementation risks must be reduced. This would not only support cyclical growth, but embed higher longer-term growth by raising productivity, encouraging capacity investment, and employment creation. Furthermore, structurally lower operating costs, as service delivery improves, will be key to improving profitability, lowering broader inflation, and lifting real incomes.
The FNB/BER Civil Confidence Index edged lower in 1Q25 to 45 index points from 48 previously. The slight deterioration was driven by renewed concerns over profitability and current operating conditions, which counteracted improved activity. Market participants also raised fears around potential shortages of inputs, should AMSA- the country's largest steel producer, cease operations. That said, the near-term outlook is promising, with market participants expecting an improved environment in the next quarter.
Producer inflation stood at 1.0% y/y in February, easing slightly from 1.1% in January. Monthly inflation was 0.4%, marginally lower than the 0.5% recorded in the previous month, as declines in the prices of transport equipment, electrical machinery, metals and computing equipment outweighed increases in petrol and diesel prices. The 1.0% rise in producer prices reflected mixed movements across categories. Food inflation moderated to 4.6% in February from 4.8% in January, while metals and computing equipment inflation stood at 1.2%, down from 1.4% in the previous month. In contrast, furniture inflation accelerated to 8.5%, up from 7.1% in January. Meanwhile, petrol and diesel prices, as well as transport equipment, remained in deflation. Intermediate producer inflation rose further to 8.5% y/y in February, up from 7.3% in January, marking its highest level since November 2022, when it also stood at 8.5%.
Week ahead
The week will kick-off with Private Sector Credit Extension (PSCE) data for February. In January, PSCE moderated slightly to 4.1% y/y from 4.2% in December. This minor slowdown was reflected in both household and corporate credit, with household credit dipping to 2.9% (from 3.0%) and corporate credit to 5.3% (from 5.4%). Monthly trends, however, diverged. Household credit experienced its strongest monthly growth in approximately a year, rising by 0.5% m/m. Conversely, corporate credit reversed its previous growth, declining by 1.2%, from 1.2% growth.
The trade balance data for February will also be released on Monday. In January, the trade balance recorded a deficit of R16.4 billion, reversing from a surplus of R14.7 billion in December 2024. This was driven by a 6.4% m/m decline in exports to R148.9 billion, while imports rose sharply by 14.4% m/m to R165.4 billion. The January deficit was nearly double the R9.7 billion shortfall recorded in January last year, which was followed by consecutive monthly trade surpluses for the remainder of the year, culminating in a cumulative surplus of R196.1 billion. We expect the trade balance to fluctuate in the near term, with a bias towards a smaller deficit as improving demand supports imports. However, the impact of higher import volumes is likely to be muted by subdued oil prices. We will also monitor the effects of tariffs and their implications for the trade balance.
The manufacturing PMI for March will be released on Tuesday. In February, the PMI showed a continued contraction in the manufacturing sector, with a slight decline to 44.7 points from 45.3, marking the fourth consecutive month of subdued activity. The downturn was driven by decreased demand and supply-chain constraints, evidenced by falling sales orders (to 38.7 points from 42) and slower supplier deliveries (to 55 points from 49.9). Compounding the idiosyncratic factors were concerns about global trade uncertainties, particularly regarding SA-US relations, contributing to a pessimistic outlook for future business conditions.
Lastly on Tuesday, NAAMSA's new vehicle sales for March will be published. In February, sales volumes posted another strong performance, increasing by 7.3% y/y to 47 978 units. This was driven by a 17.0% increase in new passenger car sales to 33 757 units, supported in part by car rental sales, which accounted for 14.6% of the passenger car market. This was the eighth consecutive month of annual growth in passenger car sales, reflecting reduced monetary policy restrictiveness, and a wider availability of affordable car options.
On Thursday, data on electricity generated and available for distribution in February will be released. Electricity production rose by 5.7% y/y in January, accelerating from 3.6% y/y in December. Seasonally adjusted output lifted by 0.4% m/m after contracting by 1.5%. The sector detracted from 4Q24 economic growth and recent generation capacity issues could weigh on the 1Q24 performance. However, disruptions have been short-lived, and should the performance reflected at the start of the year be sustained, the electricity sector would support GDP growth going into 2025.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 25 Mar | SA | FNB/BER Consumer Confidence Index | 1Q25 | -20 | -6 |
| SA | Leading Business Cycle Indicator | Jan | 114.4 | 113.3 | |
| SA | Quarterly Employment Statistics % q/q | 4Q24 | 0.1 | -1.0 | |
| 27 Mar | SA | FNB/BER Civil Confidence Index | 1Q25 | 45 | 48 |
| SA | Produce Price Inflation % y/y | Feb | 1.0 | 1.1 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 31 Mar | SA | Private Sector Credit Extension % y/y | Feb | -- | 4.6 |
| SA | Trade balance R billion | Feb | -- | -16.4 | |
| 1 Apr | SA | Manufacturing PMI | Mar | -- | 44.7 |
| SA | Naamsa Vehicle Sales % y/y | Mar | -- | 7.3 | |
| 3 Apr | SA | Electricity production % y/y | Feb | -- | 5.7 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 89,897.64 | 0.40% | 2.90% | 21.60% |
| USD/ZAR | 18.23 | 0.40% | -1.20% | -3.60% |
| EUR/ZAR | 19.7 | 0.00% | 2.60% | -3.80% |
| GBP/ZAR | 23.61 | 0.30% | 1.50% | -1.20% |
| Platinum US$/oz. | 989.21 | 0.00% | 4.00% | 9.90% |
| Gold US$/oz. | 3,057.29 | 0.40% | 6.20% | 39.30% |
| Brent US$/barrel | 74.03 | 2.80% | 0.00% | -14.00% |
| SA 10 year bond yield | 9.92 | 1.10% | 1.40% | -12.90% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 0.6 | 1.7 | 1.8 | 2.1 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.0 | 2.1 | 2.2 | 2.3 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -3.7 | 1.4 | 2.8 | 3.9 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.4 | 4.0 | 4.5 | 4.4 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.0 | 5.0 | 4.4 | 4.4 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USD/ZAR (average) | 16.40 | 18.5 | 18.3 | 18.4 | 18.6 | 19.0 |
