South African households own less and owe more and were 1.2 trillion rand poorer in the second quarter of 2022, according to the latest Momentum-Unisa Household Wealth Index. Their wealth fell by about 1.23 trillion rand (1,230 billion rand) to 15.75 trillion rand from 16.98 trillion rand in the first quarter to the same level as a year ago. A 39 billion rand increase in the value of outstanding household debt and a 1.19 trillion rand decrease in the value of household assets combined to register a 1.23 trillion rand decrease in the value of household wealth. Supposedly outstanding…
South African households own less and owe more and were 1.2 trillion rand poorer in the second quarter of 2022, according to the latest Momentum-Unisa Household Wealth Index.
Their wealth fell by about 1.23 trillion rand (1,230 billion rand) to 15.75 trillion rand from 16.98 trillion rand in the first quarter to the same level as a year ago.
A 39 billion rand increase in the value of outstanding household debt and a 1.19 trillion rand decrease in the value of household assets combined to register a 1.23 trillion rand decrease in the value of household wealth.
Outstanding household debt increased to an estimated 2.67 trillion rand in the second quarter, while household assets shrank to 18.42 trillion rand.
What does this mean for consumers?
According to Johan van Tonder, financial recovery economist at Momentum, this will contribute to slower growth in household consumer spending, which in turn will weigh on economic growth and employment if this low level of household wealth persists.
Momentum-Unisa research shows that a 1% change in real household welfare can be associated with a 0.8% change in real household consumption expenditure on average. A decrease in the value of household financial assets by 10% was the main reason for the decline in household welfare.
Household spending affects economic growth, which in turn affects employment. Thus, an increase in household welfare in the form of an increase in the value of real assets can contribute to employment growth.
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Reduction due to risk aversion
Van Tonder says the value of financial assets, including pension funds and long-term insurance and investments such as mutual funds, has fallen due to risk aversion caused by aggressive interest rate hikes by central banks to curb high consumer price inflation that has fueled fears of an economic downturn in major economies, which will negatively affect the growth of the world economy.
As a result, the JSE All Share Index lost 12.3% (from the end of the first quarter to the end of the second quarter, and the All Bond Index – 3.7%).
These declines reduced the value of pension funds and long-term insurance by 553.7 billion rand and further reduced the value of other investments by 776.9 billion rand.
“On the other side of the coin, household liabilities increased by about 39 billion rand, mainly due to higher loan arrears. About half of the increase is due to growth in mortgage loans (19.2 billion rand).
“However, due to factors such as rising interest rates affecting the absorption of other debt, household debt growth slowed to 1.5% in the second quarter from 2.7% in the first quarter.”
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Total household assets
Total household assets can consist of financial and non-financial assets. Financial assets accounted for approximately 63.9% of total assets in the second quarter, down from 66.3% in the first.
The largest component of financial assets, household investments in pension funds and long-term insurance products, accounted for 36.9% of total assets, down from 37.5% in the first quarter.
Other financial investments, such as mutual funds, stocks and bonds, accounted for 17.9% in the second quarter (down from 20.7%), while deposits accounted for 9.1% (up from 8.4%).
“The decrease in the share of the two “risky” components of financial assets, pension funds and long-term insurance, as well as other investments, and the increase in the “safer” deposit component suggests that higher risk aversion contributed to lower household values. assets,” Van Tonder says.
This risk resulted in a 553.7 billion rand decline in the value of pension funds and long-term insurance and a further 776.9 billion rand decline in the value of other investments.
A 30.3 billion rand increase in the value of household deposits slightly offset a combined 1.33 trillion rand decline in the value of these two components of financial assets.
“The higher risk that affected the value of financial assets arose mainly as a result of aggressive interest rate hikes by various central banks. Van Tonder says that compared to the first quarter, these increases came at a faster pace and magnitude as central banks “front-loaded” rates to contain high consumer price inflation.
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Fears of an impending global economic recession
Van Tonder says those aggressive rate hikes and other factors, such as energy shortages, have fueled fears of a looming global economic recession and risk aversion, which in turn has pushed stock prices lower and bond yields higher.
In contrast, non-financial assets such as houses, durable goods and other non-financial assets increased by 1.6%, limiting the decline in the value of total household assets to 6.1%.
Households’ outstanding liabilities (mainly loans) rose by about 38.9 billion rand to 2.67 trillion rand, but seasonal factors and higher interest rates ensured a smaller increase than the 70.2 billion rand in the first quarter, he said.
All major liability categories, mortgages, vehicles and other secured loans, unsecured loans and credit and other liabilities such as municipal debt and other delinquent accounts also increased.
Momentum-Unisa estimates that outstanding mortgage loans increased by R19.2 billion, vehicle debt and other secured debts by R7.4 billion, unsecured loans and lines of credit by R6.2 billion and other liabilities by by 6.1 billion rand.
What do we see in the third quarter? Van Tonder says preliminary data suggests that household wealth may recover somewhat, and if it does, it may be associated with a stabilization and moderate recovery in share prices.
