South African households’ net wealth increase further despite weak economic growth

South African household net wealth surged further in the first quarter of 2014 (Q1 2014) despite lower international economic growth and a contraction in domestic economic growth.

According to the Momentum/Unisa Household Wealth Index, South African households’ net wealth increased by 9.9% on a quarter-over-quarter seasonally adjusted and annualised basis (QoQSAA) during Q1 2014. South African households’ net wealth amounted to R7 309 billion (R7.309 trillion) at the end of Q1 2014. Households’ net wealth was driven by household assets outpacing the increase in household liabilities. The value of household assets increased by 9% to R8 912 billion in Q1 2014 from R8 721 billion in Q4 2013. Household liabilities increased by 5.1% to R1 603 billion in Q1 2014.

The value of household assets was driven mainly by an increase in households’ financial assets – specifically investments in listed shares, directly, or indirectly via their retirement funds. The JSE All Share Index (Alsi) increased by 3.3% (unannualised) to 47 771 points over the quarter ending 31 March 2014. During the year between Q1 2013 and Q1 2014 the JSE Alsi gained almost 20%, strongly supporting the growth in household asset values. However, many analysts warned that the JSE is overvalued, which suggests that the value of household assets is at risk should the JSE Alsi pull back.

Stronger growth in residential mortgages and consumer secured credit was the driving force behind the increase in household liabilities. However, household debt serving costs increased at a QoQSAAR of 17.9% in Q1 2014 following the increase of 50 basis points in the repo rate and further growth in household credit. However, this also contributed to a sharp increase in household arrears. This was confirmed by statistics published by the National Credit Regulator that showed an increase of 6.3% in household arrears on credit between Q4 2013 and Q1 2014. This was primarily driven by an increase of 8.9% in instalments one to two months in arrears.

Highlights

• The pace of global economic growth decelerated from 3.4% in Q4 2013 to 2.1% in Q1 2014 on a quarter-over-quarter seasonally adjusted and annualised (QoQSAA) basis;
• The weaker growth performance can be ascribed to a slowdown in the pace of growth in the United States of America (where a contraction occurred) and in China;
• South African economic growth was negatively affected by the slower international economic growth, a prolonged labour strike in the platinum sector, infrastructure shortages and an increase of 50 basis points in the repo rate;
• These factors contributed to economic growth contracting 0.6% (QoQSAA) in Q1 2014;
• Household finances experienced further pressure during Q1 2014, contributing to the weak growth performance;
• Household disposable income increased at a slower pace of 1.7% (QoQSAA) in Q1 2014, down from 2% in Q4 2013;
• Combined with a slower uptake of credit, this contributed to household consumption expenditure slowing from 2% in Q4 2013 to 1.8% (QoQSAA) in Q1 2014;
• However, household net wealth increased further during Q1 2014, albeit at a slower pace;
• Household net wealth increased by 9.9% in Q1 2014 to R7 309 billion compared to the increase of 15.4% in Q4 2013 (QoQSAA);
• Household assets increased by 9% in Q1 2014 to R8 912 billion compared to the increase of 13.4% in Q4 2013 (QoQSAA);
• Household assets were driven by investments in listed companies – the JSE Alsi increased by 3.3% (13.8% annualised) in Q1 2014;
• Household liabilities increased by 5.1% in Q1 2014 to R1 603 billion (QoQSAA);
• Household debt servicing costs increased by 17.9% (QoQSAA) in Q1 2014;
• Household arrears on credit increased by 6.3% in Q1 2014, driven by an increase of 8.9% in instalments one to two months in arrears.