Despite some interest rate relief for South African households during the first half of 2025, financial pressures remain.

While the Altron FinTech Household Resilience Index (AFHRI) for the second quarter of 2025 shows a healthy year-on-year improvement of 2.3%, a recovery assisted by modest declines in the prime rate, the average yearly increase in the financial resilience of households since the Monetary Policy Committee’s interest rate hiking cycle started is “barely above zero”.

“With an average annual population growth rate of 1.4% since 2014, it is clear that the average financial disposition of South African households has continued to decline. This unfortunate development is mainly owing to the highest interest rates in 15 years, which led to a sharp increase in the debt-servicing costs of households,” said economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech.

“The unduly restrictive monetary policy, in the absence of any sign of demand inflation, actually represents a self-inflicted suppression of economic activity.”

This has resulted in two successive years of GDP growth of below one per cent.

Compared with the last comparable quarter before the Covid-19 pandemic, the financial disposition of South African households has improved at an average yearly real rate of 0.5%, which is marginally lower than the average yearly real rate of GDP growth over the past six years.

The average yearly increase in the AFHRI of 1.1% since the inception of the index in the first quarter of 2014 is on par with the increase in the GDP, but households have fared significantly worse than the total economy over the past three-and-a-half years.

“While the year-on-year improvement is encouraging, the reality remains sobering – household financial resilience has improved by barely 0.2% a year since the interest-rate-hiking cycle began,” added Altron FinTech MD Johan Gellatly.

“The May rate cut to 10.75% has provided welcome relief, as shown by 15 of our 20 indicators showing positive trends, but this is merely a first step.”

With GDP growth forecast to remain below 1.3% for 2025, further aggressive monetary policy easing is essential to restore genuine household financial stability and create the conditions for meaningful employment growth.

The impact of the two-pot system, which generated R13-billion in tax revenue, has artificially inflated household incomes and masked what would have been an even weaker recovery.

The impact of the two-pot system has been visible in the AFHRI, with the indicator for lump-sum pension fund withdrawals during the fourth quarter of 2024 and the first quarter of 2025 recording year-on-year increases of 35% and 40%, respectively.

In the absence of these unnatural increases in household incomes, the average yearly improvement in the AFHRI since the start of the interest rate hiking cycle would have been even closer to zero.

An encouraging feature of the latest AFHRI is the stability that has crept in for the average index value over the past four quarters.

The four-quarter average index eliminates seasonal influences, especially with regard to the agriculture sector and also the retail spending spree that boosts economic activity during the fourth quarter of each year.

The latest AFHRI reading of 113.7, on the basis of a four-quarter average, is slightly higher than the value for the first quarter of 2025, but the year-on-year increase is considerably more impressive at 2.6%.

The prime rate cut to 10.75% in May predictably led to a further strengthening of the AFHRI during the second quarter, with 15 of the 20 indicators comprising the index recording positive year-on-year trends and 12 of them also posting quarter-on-quarter growth.

Both the employment levels and the salaries in the private sector of the economy improved during the second quarter of the year, albeit only marginally, at 0.5% and 0.7% respectively.

A feature of the second quarter AFHRI results was the increase of almost 14% in the real value of unit trust assets, buoyed by the sterling performance of the all-share index of the Johannesburg Stock Exchange.

Although surrenders of long-term insurance policies increased by almost 5% in real terms year-on-year, the lump-sum withdrawals from pension funds seem to have stabilised after the spike that occurred immediately after the introduction of the two-pot system in September 2024.

The year-on-year increase in household disposable income of 2.3% is also encouraging and in line with the overall AFHRI.