Household finances in South Africa are expected to remain strained on the back of accelerating unemployment rate and rising debt levels, resulting in slow expenditure trends.
According to the Quarterly Bulletin released by the South African Reserve Bank (Sarb) on Thursday, growth in real gross domestic expenditure (GDE) eased to 0.4% in the first quarter of 2025 following an increase of 0.2% in the fourth quarter of 2024.
Real final consumption expenditure by households increased at a slower pace in the first quarter of 2025 but nevertheless contributed most to growth in real GDP.
By contrast, real final consumption expenditure by the general government and gross fixed capital formation contracted further, alongside a further deaccumulation of real inventory holdings, albeit at a slower pace.
“Growth in real final consumption expenditure by households moderated notably in the first quarter of 2025, along with the slower pace of increase in the real disposable income of households and a sharp decline in consumer confidence,” said the Sarb.
“Real spending on durable and non-durable goods increased at a slower pace, while that on semi-durable goods remained unchanged and growth in real outlays on services accelerated.”
This comes as the Consumer Confidence Index rebounded from the significant drop in the first quarter of 2025 from -20 to -10 in the second quarter.
This was predominantly due to the resolution or improvement in earlier concerns including the reversal of the value-added tax (VAT) increase, lower stages of loadshedding, improved relations between the United States and South Africa, and the Government of National Unity (GNU) partners’ commitment to working together.
Momentum Investments chief economist, Sanisha Packirisamy, maintained a positive view on the consumer outlook despite the headwinds facing consumers.
Packirisamy said this outlook was supported by the rebound in CCI following the sentiment shock in the first quarter.
“The rise in the unemployment rate in the first quarter, potential fuel price increases following the temporary spike in Brent crude oil prices due to the Israel-Iran conflict, and floods could weigh on consumer sentiment. However, reduced load shedding, a continuation in two-pot withdrawals, lower interest rates and a stable GNU, if it persists, could support consumer confidence,” she said.
“We forecast household consumption expenditure to grow by 1.8% in 2025. As the largest component of GDP, accounting for 67.7% in the first quarter, household consumption is central to our growth outlook and forms the cornerstone of our 1.2% GDP growth projection for 2025.”
Meanwhile, the Sarb said household debt as a percentage of nominal disposable income increased from 62.2% in the fourth quarter of 2024 to 62.7% in the first quarter of 2025 as household debt increased more than nominal disposable income.
Households’ cost of servicing debt relative to disposable income edged slightly lower over the same period, reflecting lower interest payments following the further 25 basis point reduction in the prime lending rate in January 2025.
Households’ net wealth increased in the first quarter of 2025 as the market value of total assets increased more than that of total liabilities.
The value of assets was boosted by a notable increase in domestic share prices as the FTSE/JSE All-Share Index outperformed share price indices in developed markets in the first quarter of 2025, while the value of housing stock also increased further.
Real gross fixed capital formation decreased by a further 1.7% in the first quarter of 2025, driven by reduced capital spending by private business enterprises, while capital outlays by public corporations and general government increased
“An increase in business confidence is imperative to drive investment and accordingly economic growth, with expectations for growth having eased notably this year to 0.9%,” said Investec economist, Lara Hodes.
Nedbank economist, Johannes Matimba Khosa, said household finances were expected to remain relatively healthy in 2025 despite the expected uptick in inflation off a low base.
Khosa said this, along with higher wage settlements in the public sector, will continue to support real personal disposable income.
He said lower interest rates and withdrawal from the Two-Pot retirement system will also help reduce debt service costs.
“However, the recovery in household finances will be partly contained by uncertain employment prospects. Given excess capacity and a volatile global environment, companies will hesitate to expand operations,” Khosa said.
“The US tariffs, weak global demand, and subdued commodity prices will impact job creation in exportoriented industries. At the same time, growth in government employment will be contained by fiscal consolidation.”
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