In what has been described as a financially devastating year, local households saw R449.8 billion of their net wealth wiped out in 2018.
Last year was a financially devastating year for South African households, which saw the purchasing power (real value) of their net wealth shrink by R449.8 billion between Q4 2017 and Q4 2018.
This is according to the Momentum/Unisa South African Household Index Q4 2018, which found that 6.3% of households’ real net wealth was wiped out over the course of just one year.
This is the largest reduction households suffered since the Great Recession, when 15.6% of their real net wealth disappeared between Q1 2008 and Q1 2009.
The researchers say the decline in real net wealth was caused by two factors:
- An increase of R21.2 billion in the real value of households’ liabilities (mostly outstanding debt);
- A sharp reduction of R428.6 billion in the real value of their assets, which mostly consist of the value of their savings for retirement.
“The reduction in financial assets again demonstrated just how vulnerable the South African economy and financial markets are – as it is very sensitive to adverse domestic and international events,” they say.
Domestic events that contributed to declining financial assets (the reduction in especially share prices of companies in which households’ retirement funds are invested) include weak economic growth (only 0.8% in 2018, including a brief recession), increasing consumer price inflation, renewed load shedding in Q4 2018, investor fears created by proposed land expropriation without compensation and an impression that the South African Reserve Bank’s independence is in danger and the negative impact of growing public debt.
Internationally, the largest contributors were slowing international economic growth caused by, among others, the trade war between the United States and China, higher interest rates in the US and other parts of the world, geopolitical events and Brexit.
“The decline in household wealth is concerning – as it contributes to slower economic growth and job creation, as well as an increasing number of households in the low-middle to high income groups having insufficient money to cope with emergencies and retire at an acceptable standard of living”.
“This, in turn, will make the economy even more fragile and sensitive to negative shocks, causing more households to become poorer. Some good news, however, is that a mild recovery is expected to have occurred in Q1 2019.”
Using South African Reserve Bank numbers as a benchmark, Momentum/Unisa estimates that the real value of households’ net wealth amounted to R6 882.5 billion in Q4 2018. This is R449.8 billion lower than a year before.
It is also R203.6 billion less than in the previous quarter (Q3 2018). This means that the real value of household wealth was at the same level as more than four years ago (between Q1 2014 and Q2 2014).
At the same time, the real value of household assets decreased by R428.6 billion (4.9%) to an estimated R8 297.3 billion over the year to the end of Q4 2018.
“The declining real value of household assets can be attributed to increasing consumer price inflation and the non-performance of some financial asset classes, negatively affecting the real value of households’ retirement funds and investments”.
Households’ outstanding liabilities increased by 1.5%, or R21.2 billion, to R 1 414.8 billion in real terms over the year from Q4 2017 to Q4 2018.
“However, this real increase was driven by higher debt of an unsecured nature – indicating struggling consumers reverting to debt to finance expenses. The real value of mortgages decreased by 1.2% over the year. Contrastingly, other debt, which includes unsecured personal loans, credit cards, overdrafts and outstanding accounts such as municipal debts – which increased to more than R100 billion by September 2018 – increased by 4.1%”.
Looking ahead, preliminary estimates point to a reasonable recovery in the real value of household net wealth in Q1 2019 as share prices recovered somewhat.
However, the recovery is based on sentiment and a weaker rand, which supported share prices of dual listed companies, rather than on fundamentals, such as load shedding, which increased to stage 4, and negatively impacted economic growth.”