The value of South African household wealth decreased by R253 billion in the third quarter, dented mainly by rate hikes, according to the Momentum/Unisa South African Household Wealth Index for the third quarter of 2022, which was released yesterday.
The decline in the value of household wealth was caused by a decrease in the value of household assets, specifically financial assets.
Johann van Tonder, an economist at Momentum, said yesterday, “Several factors contributed to the declining value of household assets over the past six months. The most prominent of these factors are fast and large increases in interest rates all over the world in an attempt to combat high CPI (consumer price inflation) rates, and an expectation of a world economic recession.”
He said households were essentially an estimated R977.5bn poorer compared to the third quarter of last year and at similar levels as in the first quarter of 2015.
The value of South African household wealth decreased by around R1.528 trillion, or 9%, since the first quarter of this year, to R15.5 trillion in the third quarter.
The index showed a household wealth decline of R1.275 trillion in the second quarter. This as the value of household wealth was R9.3bn, or 0.1% lower than the third quarter of last year.
“If households want to climb out of this rut and gain more wealth, their income must increase at least by more than the consumer price inflation (CPI) rate,” he said.
In September, the BankservAfrica Economic Transactions Index (BETI) declined further to an index level of 131.1, notably lower than the all-time high of 143.2 in May and the lowest since the 130.6 reached in December last year.
This as South Africa’s local economy buckled under the pressure of severe load shedding and global headwinds.
The index declined for the fourth consecutive month with a contraction of 0.4% recorded in September, compared to 2% in August.
Consequently, Momentum said the index revealed that share prices declined and bond yields increased, negatively affecting the value of households’ pension funds and investments.
According to the index, the value of household pension funds and other interests in long-term insurance declined by an estimated R630.3bn since the first quarter of the year, while investments such as unit trusts decreased by R1.061 trillion. Combined, these two asset categories declined by R1.691 trillion.
This decline was marginally offset by an increase of R250.1bn in the value of other assets such as residential buildings, durable goods, and deposits, leading to the value of total assets decreasing by an estimated R1.441 trillion.
In addition, the index showed outstanding household liabilities increased by an estimated R86.9bn in the six months to the third quarter of this year, with equal increases in outstanding bond mortgages and other debt.
According to Van Tonder, the combined effect of increasing outstanding liabilities and declining asset values contributed to the decline in household wealth.
Looking ahead, the economist said household wealth had reached a bottom, and the outlook was for a revival in household assets to drive a recovery in household wealth.
Meanwhile, releasing its 13th edition of its “Global Wealth Report”, which examined the asset and debt situation of households in almost 60 countries last month, insurer and asset manager Allianz said the war in Ukraine had choked the recovery after Covid-19 and turned the world upside down as inflation was rampant, energy and food were scarce, and monetary tightening squeezed economies and markets.
It said that households’ wealth would feel the pinch as global financial assets were set to decline by more than 2% this year, the first significant destruction of financial wealth since the global financial crisis in 2008.
In real terms, Allianz said households would lose a tenth of their wealth. Its mid-term outlook was rather bleak with the average nominal growth of financial assets expected to be at 4.6% until 2025, compared to 10.4% in the preceding three years.