Household finances are expected to deteriorate further in the second quarter of this year, reflecting the temporary surge in inflation, before improving in the second half of the year.
Image: KwaZulu-Natal Human Settlements
Household finances deteriorated in the first quarter of this year, as real personal disposable income (PDI) growth slowed, employment decreased, and net wealth moderated.
Growth in real PDI slowed from 1% quarter-on-quarter in Q1 to 0.8% in Q4. Compensation of employees (COE) rose by 2.2%, accelerating from 0.5% previously. However, this was said to be offset by a sharp (4.2% qoq) contraction in other income, says the Nedbank Economics Unit.
The decline in other income (profits, rents, interest, and dividends) resulted from a deterioration in global equities when the US launched a war against Iran towards the end of February, says the bank's economists Johannes Khosa and Nicky Weimar.
This is evident in a recent comparative assessment of municipal development costs across KwaDukuza, eThekwini Metropolitan Municipality, Mbombela Local Municipality and Stellenbosch Local Municipality, which reveals clear and material differences in cost competitiveness, driven primarily by property rates, service charges and key development-related fees.
A critical finding of the study was that recurring municipal charges, particularly property rates and utility consumption tariffs, were the dominant drivers of long-term development viability, far outweighing once-off administrative and application-related costs.
Municipal electricity customers across South Africa will face higher electricity costs from the beginning of July, following the implementation of approved municipal tariff increases for the 2026/27 financial year.
While the approved increase averages 9.01%, the actual impact on businesses will vary depending on their municipality, tariff structure and consumption profile, said David Macdonald, CEO of AT SolarAfrica.
They say concerns about the impact of the surge in petrol prices prompted households to be cautious about the pace of spending and to take on additional debt.
“Consequently, growth in household consumption expenditure (HCE)slowed from 1.2% qoq in Q4 to 0.1% in Q1, its lowest since Q1 2024. Increased borrowing and slower nominal income growth increased the ratio of household debt to PDI from 61.8% in Q4 to 62.2% in Q1. The ratio of debt service costs to PDI was unchanged at 8.4%, reflecting steady interest rates.”
The banking unit says households’ net wealth deteriorated slightly as total assets decreased and total liabilities increased. It says the decrease in the value of assets mainly reflected a decline in share prices following the onset of the US-Iran war.
Consequently, the ratio of net wealth to nominal disposable income decreased from 446% in Q4 to 440% in Q1, it says.
“Household dissaving continued, albeit at a slightly slower pace, with the ratio of personal savings to PDI easing from -1.4% to -1.3%.”
Household finances are expected to deteriorate further in the second quarter of this year, reflecting the temporary surge in inflation, before improving in the second half of the year.
Improved inflation outlook and strengthened expectations that SARB will maintain an accommodative monetary policy stance.
The recent moderation in global fuel prices has improved the inflation outlook and strengthened expectations that the South African Reserve Bank (SARB) will maintain an accommodative monetary policy stance, Khosa and Weimar say.
In addition, they say previous interest rate cuts and withdrawals from two-pot retirement savings should continue to provide some relief to households by lowering debt-servicing costs and supporting disposable
income. “Lower and stable interest rates are also expected to support house and equity prices, thereby strengthening household balance sheets in the second half of the year.”
The economics unit says underlying fundamentals are still supportive of continued growth in consumer spending. However, it says the fragile consumer confidence, amid a weak labour market, is likely to constrain the pace of spending growth.
"We currently forecast consumer spending growth of 1.9% in 2026, slowing from 3.6% in 2025.”
Meanwhile, South African consumers are reshaping how they access and use credit as affordability pressures persist, according to TransUnion’s Q1 2026 South Africa Industry Insights Report.
The report’s findings show that credit demand remained resilient, but diverging risk dynamics are increasingly evident across products and providers.
Consumers are said to be relying more heavily on existing credit facilities while also shifting toward more accessible lending options that are typically employed by higher-risk borrowers to manage short-term liquidity needs.
The personal loan markets continued to show distinctly different trajectories during the quarter. Bank personal loan originations recorded modest growth of 2.5% YoY, while the number of active accounts increased by 1.4% over the same period.
Looking below this headline, growth reveals a shift in lending mix by borrower risk profiles, with below-prime originations rising by 5.0% while prime and above segments declined by 3.8%.
Gen Z participation also increased significantly, with originations among this segment rising 21% YoY, bringing their share to 23% (up from 19.5% in Q1 2025) of total bank personal loan originations.
South Africa’s Q1 2026 insights highlight a credit landscape that remains active but increasingly segmented.
While demand for credit persists, affordability constraints are reshaping how consumers borrow, with greater reliance on short-term liquidity and higher-risk products,” says Ayesha Hatea, director of research and consulting at TransUnion South Africa.
“These trends underscore the need for lenders to balance growth with prudent risk management while supporting sustainable access to credit across the market.”
The Nedbank Group Economics Unit says household credit growth gained further ground, rising from 4.6% to 4.7%, as previous interest rate cuts continued to
support borrowing. It says all major lending categories contributed. “Among the largest components, mortgage lending accelerated from 4.4% to 4.7%, supported by lower borrowing costs and firmer house price growth.”
It added that on the consumer side, earlier interest rate cuts will sustain spending and demand for general loans. It says mortgage lending is likely to benefit from both lower borrowing costs and rising house prices.