SA household wealth decreased in the second quarter of the year after a fall in financial assets, triggered by fears of an economic recession in big economies, the latest Momentum-Unisa household wealth index reads.
According to the index, SA household wealth decreased by an estimated R1.23-trillion to R15.75-trillion in the second quarter from R16.98-trillion in the first quarter.
Household expenditure affects economic growth, which in turn influences employment. Research shows that a 1% change in real household wealth can on average be associated with a 0.8% change in real household consumption expenditure.
Increasing household wealth — in the form of rising real asset values — could therefore assist in employment growth.
The Momentum-Unisa household wealth index calculates the value of household wealth by subtracting household outstanding liabilities (debt) from the value of their assets.
The index found that the overall value of household assets is estimated to have decreased by R1.19-trillion, or 6.1%, between the first quarter of this year and the second (R18.15-trillion).
Household assets include financial and non-financial assets. Financial assets consist of pension funds, long-term insurance, and financial investments such as in unit trusts, shares, and bonds. Non-financial assets include residential buildings, the value of vehicles, household contents, and small-scale holdings, livestock and orchards.
Data shows that non-financial assets such as residential buildings and durable goods increased by 1.6%, while financial assets fell 10%.
Momentum economist Johann van Tonder said the decline shows how households have become more risk averse, preferring investments with low uncertainty to those that have high uncertainty.
He said the aggressive tightening of interest rates by global central banks to contain high consumer price inflation has made households more risk averse, amid fears of an economic recession in major economies likely to negatively affect world economic growth.
In the second quarter the US Federal Reserve increased interest rates by a second consecutive 0.75 basis points (bps) in an attempt to get inflation back to its 2% target. The SA Reserve Bank increased the repo rate by 50 bps in May and by another 75 bps in July, taking it to 5.5%.
Van Tonder said these aggressive rate increases and other factors, such as the shortage of energy due to the Ukraine war, have triggered fears of a looming world economic recession and risk aversion, which in turn caused investments such as pension funds and household long-term insurance to decrease in value, contributing to the decline of household assets.
Interest rate increases by global central banks also caused share prices to decline and bond yields to rise. The JSE all share index lost 12.3% in the second half of this year and the all bond index 3.7%.
“All this contributed to the value of financial assets to decline by 10% in the second quarter. These declines resulted in a decrease of R553.7bn in the value of pension funds and long-term insurance, and an even larger decrease of R776.9bn in the value of other investments,” Van Tonder said.
“Should this lower level of household wealth persist, it will contribute to slower growth in household consumption expenditure, which in turn should adversely affect economic growth and employment,” he added.
Household liabilities are subtracted from household assets to get the wealth index. Household liabilities consist of outstanding credit such as housing, vehicle and personal loans, as well as credit and store card debt. Other debts include outstanding municipal accounts.
Data shows that household liabilities increased by an estimated R38.8bn in the second quarter, mainly because of an increase in outstanding credit. Findings show that about half of the increase stems from growth in mortgages.
Households’ outstanding liabilities, mostly credit, increased by an estimated R38.9bn in the second quarter.
All the main liability categories — mortgages; vehicle and other secured loans; unsecured loans and credit facilities; and other liabilities such as municipal debt and other accounts in arrears — increased in the second quarter.
According to the index, outstanding mortgages increased by R19.2bn in the period under review. Vehicle and other secured debt increased by R7.4bn, while unsecured loans and credit facilities increased by R6.2bn.
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