Household Financial Resilience Index (AFHRI) Q1 2025

Johannesburg, 3 September 2025 – The results of the Altron FinTech Household Resilience Index (AFHRI) for the first quarter of 2025 were released today, confirming a challenging environment for households at the start of the year. Although the AFHRI showed a modest year-on-year improvement of 2.5%, the quarter-on-quarter reading of 111.4 was 4.2% lower than the index value for the fourth quarter of last year.

Compared to the first quarter of 2020 (just before the COVID-19 pandemic), the financial disposition of South African households has improved at an average annual real rate of merely 0.3%, which is marginally lower than the average annual real rate of GDP growth over the past five years. Although the average annual increase in the AFHRI of 1% since the inception of the index in the first quarter of 2014 is marginally higher than the quarterly increase in the GDP, households fared worse than the total economy in the three prior quarters, as shown in table 1.

One of the encouraging features of the latest AFHRI is the stability that has crept in for the average index value over the past four quarters. The index eliminates seasonal influences, especially with regard to the agriculture sector and also the retail spending spree that boosts economic activity during the fourth quarter of each year. The AFHRI reading of 113.1 (on the basis of a four-quarter average) is slightly higher than the value for the first quarter of 2025, but the average annual increase since the inception date in 2014 is merely ten basis points higher at 1.1%.

Following a third repo rate cut of 25 basis points in January 2025, the first quarter ended with the prime lending rate at 11%. Although this reduction in the cost of credit assisted with the stabilisation of the AFHRI, the real prime rate (prime minus consumer inflation) remained 118% higher than it was in the first quarter of 2020 (prior to the Covid pandemic) and 177% higher than it was in the first quarter of 2014, before the appointment of the current monetary policy committee (MPC).

According to economist Dr Roelof Botha, who compiles the index on behalf of Altron FinTech, the restrictive monetary policy of the MPC has been the main reason for the consistent decline in the per capita disposable income of South African households (in real terms), with a more pronounced downward trend since the restrictive monetary policy started to take its toll on virtually all of the key macroeconomic indicators.

Neglect of the objective of employment creation

Dr Botha points out that the primary goal of the South African Reserve Bank (SARB) is the achievement and maintenance of price stability, in the interest of balanced and sustainable economic growth, which is in line with the policy mission statements of most other central banks. Interestingly, several central banks in developing countries also specifically mention the objective of implementing policy in the interest of economic development, which is aligned with the quest for sufficient employment creation.

In an illuminating article on the inappropriate nature of monetary policy in recent years, published in Business Day in 2023, Graham Barr and Brian Kantor (both emeritus professors at the University of Cape Town), refer to the argument of the Reserve Bank (in defending the hikes in the prime rate from 7% at the end of 2021 to 11.75% at the beginning of September 2024) that it may have a negative impact on the growth rate of the economy in the short term, but that in the longer term these actions will lead to low and stable inflation rates.

They proceed to point out that this theory of monetary policy is not particularly applicable to the South African case. South Africa is a small economy and open to foreign trade and capital flows. This means the foreign exchange value of the rand, which is a primary driver of the inflation rate, can change abruptly for reasons that have little to do with interest rate settings, the actions or beliefs of the central bank, or expectations of its actions. Dr Botha concurs with this argument and points out that the MPC’s policy focus has been concentrated on the lowering of inflation, with a disregard for the second element, namely economic growth (and, implicitly, employment creation). This is confirmed by the structural shift towards a higher lending rate, also in real terms.

The consistent and sharp increase in total unemployment in South Africa (including discouraged work-seekers) is equally alarming, with this figure of just over 11.5 million people now equal to the level of formal employment. In 2015, there were 3.2 million more people employed in the formal sectors of the economy than the total number of unemployed people. Unless this trend is reversed soon, the majority of the country’s labour force will not have a decent job and will not be able to contribute to the most important sources of government revenue, namely personal income tax and value-added tax.

Results of the AFHRI for the first quarter of 2025

It is customary in South Africa for many households to be cash-strapped at the beginning of each year, following the summer holidays and festive Christmas season, when year-end bonuses are spent. The first quarter of 2025 witnessed a traditional contraction in the AFHRI, but the solid growth during the previous two quarters meant that the four-quarter average value continued to climb. Compared to the first quarter of 2024, the AFHRI also improved.

The following table summarises the performance of the different indicators comprising the AFHRI over three different periods, i.e. since the last comparable quarter before the COVID-19 lockdowns – Q1 2020; quarter-on-quarter; and year-on-year (percentage changes in real terms). The period since the first quarter of 2020 is regarded as relevant to gauge whether or not the financial resilience of households has fully recovered from the pandemic.

In addition to the country’s real lending rate remaining significantly higher than the average over the past 15 years, the unfortunate decline in formal sector employment and real salaries during the first quarter of the year put paid to any prospect of a fourth successive rise in the AFHRI.

With another rate cut having occurred in May, the prospects are sound for a rebound of the AFHRI during the second quarter. Fortunately, job creation resumed during the second quarter of the year, albeit marginal. In the event of the monetary authorities appreciating the dire need for higher growth and employment creation, further rate cuts may be expected before the end of the year.

The MD of Altron FinTech, Johan Gellatly, says that the latest AFHRI data quantifies the persistent financial pressures confronting South African households as we move through 2025, despite the marginal year-on-year improvement.

“The first-quarter results reflect the harsh reality facing South African consumers – while we’ve seen modest annual growth in the index, the quarter-on-quarter decline of 4.2% underscores the volatility facing households, and their financial vulnerability in this high-rate environment. With the prime rate still 118% higher than it was pre-pandemic, and unemployment at an all-time high, we believe that the Reserve Bank has a duty to create a more conducive environment for economic growth. They may cut offers some hope for the AFHRI’s performance in Q2, but far more aggressive monetary policy easing is essential to restore household financial stability and stimulate the investment and consumer spending that drives our economy. At Altron FinTech, we remain committed to providing our clients with the sophisticated financial solutions and insights they need to navigate this prolonged period of economic strain.”

Gellatly adds that Altron Fintech’s comprehensive suite of services continues to enable businesses to better understand and respond to evolving consumer financial behaviours, providing critical intelligence on payment patterns, credit utilisation and financial-resilience metrics that inform strategic decision making in this constrained economic environment.