The latest Altron FinTech Household Resilience Index (AFHRI) has improved, for the third consecutive quarter, following a series of repo rate cuts between September 2024 and January 2025.

While the three 25 basis points cuts have led to a modest improvement in the financial positions of South Africa’s households, citizens are “not out of the woods yet”, AFHRI's fourth quarter of 2024 report has found.

Economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech, pointed out that the increase in the AFHRI during the fourth quarter of 2024 reflected the seasonal influence of year-end bonuses, as well as temporary jobs created during the summer holiday season.

In addition, withdrawals from pension funds and other investments related to the two-pot system, which started in the third quarter of 2024, artificially inflated the performance of the AFHRI, an effect that is likely to become more subdued during 2025 and that is detrimental to the financial disposition of households in the longer term.

When these indicators are included at their values recorded in the third and fourth quarters of 2023, the AFHRI’s year-on-year and quarter-on-quarter increases drop to 1.4% and 1.2%, respectively.

Botha commented that, from a longer-term perspective, it is also concerning that households have been sacrificing considerably more of their incomes on servicing debt – a direct result of the restrictive monetary policy over the past three years.

“At the latest meeting of the Monetary Policy Committee (MPC) of the Reserve Bank, the rate-cutting cycle was halted, which will prevent the debt cost burden of households from dropping to a level that would encourage a more permanent recovery of household expenditure – the key driver of aggregate demand in the economy,” Botha said.

“In the event of the country’s monetary authorities appreciating the dire need for higher growth and employment creation, further rate cuts will be on the cards.”

However, the economy is unlikely to grow at more than 1.5% in real terms until the prime overdraft rate declines to between the pre-Covid rate of 10% and the rate of 7% immediately after the Covid lockdowns were lifted. The prime overdraft rate is currently 11%.

“The AFHRI’s four-quarter average indicator has started to recover but remains barely above the level recorded at the end of 2021, when the MPC started its relentless cycle of interest rate increases, despite lacklustre GDP growth and an obvious absence of excess demand in the economy.”

The ratio of household debt costs to disposable incomes, while having declined to 8.9%, remains significantly higher than the 6.8% level in 2021.

Further, the cost of credit, and of capital formation, in the South African economy remains 31% higher than four years ago – one of the main reasons for the lethargic economic growth rate that moved in tandem with each increase in the repo rate.

“The decision by the MPC at its March policy meeting not to lower the repo rate further is regrettable, as several key economic indicators continue to show weakness, with business confidence having retracted since the beginning of the year,” Botha continued.

The S&P Global Purchasing Managers’ Index for South Africa fell to 47.4 in January 2025, down from 49.9 in December, marking the sharpest contraction in the private sector since July 2021.

“Although it recovered to 48.3 in March 2025, it has now been in contraction territory – below 50 – for four successive months. The main reason for the decline in this indicator is weak demand that has driven further declines in output and in new orders.”

Further, Botha indicated the marginal lowering of interest rates had not been sufficient to lift the building construction sector out of its deep recession.

The Afrimat Construction Index for the fourth quarter of 2024 showed a marginal 0.5% quarter-on-quarter increase, below the rate recorded for the country’s GDP.

The lengthy and steep decline in the values of building plans passed and buildings completed in the country’s metropolitans and larger municipalities should concern South Africa’s policymakers, he said.

“Any significant decline in construction sector activity will necessarily exert a negative impact on the AFHRI, owing to the twin effects related to the large weighting of employment in the AFHRI and the fact that the construction sector is the most labour-intensive sector in the economy.”

During the fourth quarter of 2024, these two indicators were 20.8% lower and 24.6% lower, respectively, than four years ago, and since the first quarter of 2022, when interest rates started rising, the average monthly real value of building plans passed has declined by more than 33% and the value of buildings completed by more than 47%.

The lowering of the repo rate has been insufficient to reverse the downward trajectory for these indicators, with year-on-year declines having been recorded in the first two months of 2025.

However, Botha highlighted that there were a number of positive trends, including an increase in private-sector employment, which was at a higher level than before Covid, as well as higher than in 2014, when the AFHRI started.

The real levels of labour remuneration in the private sector have also increased, both on a quarter-on-quarter and year-on-year basis.

Altron FinTech MD Johan Gellatly said that the latest AFHRI figures highlighted the ongoing financial challenges faced by South African households, despite the modest improvement.

“The data clearly shows that while we are seeing some recovery, households remain under significant financial strain following this period of high interest rates. The marginal interest-rate cuts have provided some small relief, but more substantial monetary policy easing is required to meaningfully improve household financial resilience, especially in the face of the diminished global growth figures anticipated this year.”

He concluded that, without further reductions, there was a risk for prolonged economic stagnation as consumer spending remained suppressed.