South African households continued to remain under pressure during the first quarter of 2025, as the restrictive monetary policy of the Monetary Policy Committee (MPC) leads to a consistent decline in the per capita disposable income of South African households in real terms.

The Altron FinTech Household Resilience Index (AFHRI) for the first quarter of 2025 showed a modest year-on-year improvement of 2.5%; however, quarter-on-quarter, the index value of 111.4 was 4.2% lower than the fourth quarter of 2024, said economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech.

“The latest AFHRI data quantifies the persistent financial pressures confronting South African households as we move through 2025, despite the marginal year-on-year improvement,” said Altron FinTech MD Johan Gellatly.

“The first-quarter results reflect the harsh reality facing South African consumers – while we have seen modest annual growth in the index, the quarter-on-quarter decline of 4.2% underscores the volatility facing households and their financial vulnerability in this high-rate environment.”

Compared with the first quarter of 2020, just prior to the Covid-19 pandemic, the financial disposition of South African households has improved at an average annual real rate of 0.3%, which is marginally lower than the average yearly real rate of GDP growth over the past five years.

Although the average annual increase in the AFHRI of 1% since the inception of the index in the first quarter of 2014 is marginally higher than the quarterly increase in the GDP, households fared worse than the total economy in the three prior quarters.

It is customary in South Africa for many households to be cash-strapped at the beginning of each year, following the summer holidays and festive Christmas season, when year-end bonuses are spent.

The first quarter of 2025 witnessed a traditional contraction in the AFHRI, but the solid growth during the previous two quarters meant that the four-quarter average value continued to climb. Compared with the first quarter of 2024, the AFHRI also improved.

“One of the encouraging features of the latest AFHRI is the stability that has crept in for the average index value over the past four quarters,” Botha added, noting that the four-quarter average AFHRI reading of 113.1 is slightly higher than the value for the first quarter of 2025.

In addition to the country’s real lending rate remaining significantly higher than the average over the past 15 years, the unfortunate decline in formal sector employment and real salaries during the first quarter of the year put paid to any prospect of a fourth successive rise in the AFHRI.

Following a third repo rate cut of 25 basis points in January 2025, the first quarter ended with the prime lending rate at 11%.

However, the real prime rate remained 118% higher than it was in the first quarter of 2020 and 177% higher than it was in the first quarter of 2014, before the appointment of the current MPC.

“The restrictive monetary policy of the MPC has been the main reason for the consistent decline in the per capita disposable income of South African households, with a more pronounced downward trend since the restrictive monetary policy started to take its toll on virtually all of the key macroeconomic indicators,” Botha commented.

The primary goal of the South African Reserve Bank is the achievement and maintenance of price stability, in the interest of balanced and sustainable economic growth; however, Botha pointed out that the MPC’s policy focus has been concentrated on the lowering of inflation, with a disregard for the second element, namely economic growth and, implicitly, employment creation.

“The consistent and sharp increase in total unemployment in South Africa (including discouraged work-seekers) is equally alarming, with this figure of just over 11.5-million people now equal to the level of formal employment,” he said, noting that, in 2015, there were 3.2-million more people employed in the formal sectors of the economy than the total number of unemployed people.

“Unless this trend is reversed soon, the majority of the country’s labour force will not have a decent job and will not be able to contribute to the most important sources of government revenue, namely personal income tax and value added tax.”

With another rate cut having occurred in May, the prospects are sound for a rebound of the AFHRI during the second quarter.

“Fortunately, job creation resumed during the second quarter of the year, albeit marginal. In the event of the monetary authorities appreciating the dire need for higher growth and employment creation, further rate cuts may be expected before the end of the year,” Botha pointed out.

“With the prime rate still 118% higher than it was pre-pandemic, and unemployment at all-time highs, we believe that the Reserve Bank has a duty to create a more conducive environment for economic growth,” Gellatly said.

The May cut offers some hope for the AFHRI’s performance in the second quarter, but far more aggressive monetary policy easing is essential to restore household financial stability and stimulate the investment and consumer spending that drives our economy, he concluded.