Johannesburg, 11 June 2026 – The results of the Altron FinTech Household Resilience Index (AFHRI) for the fourth quarter of 2025 were released today. The index recorded its seventh successive increase in the seasonally adjusted value, which was 114.7 and, by definition, 14.7% higher in real terms than the base period of 2014 (first quarter). Compared to the fourth quarter of 2024, the latest reading of the AFHRI was identical to South Africa’s average population growth rate over the past decade, namely 1.4%, implying zero progress in per capita terms.

Some relief for households

The seasonally adjusted year-on-year reading was marginally higher at 2.2%, confirming some relief for households during 2025. This was driven mainly by lower interest rates, which has led to a year-on-year increase of 7.1% in the ratio of household income to debt costs and supported a 4.1% increase in household consumption expenditure.

Absence of demand inflation

Although the AFHRI has recovered from the debilitating effects of the lockdowns imposed during the extraordinary health pandemic of 2020, it suffered a second bout of weakness during the interest rate hiking cycle of the monetary policy authorities between 2023 and 2024, which took the prime lending rate to its highest level in 15 years. Between September 2024, when monetary policy started becoming less restrictive and December 2025, the prime rate dropped from 11.75% to 10.25%. Unfortunately, it has now been raised again to 10.5%, ostensibly to combat inflation, despite the recent increase in the consumer price index (CPI) being mainly due to the spike in fuel prices and a relentless increase in the costs of electricity and water, which are mainly provided by the public sector.

The paltry improvement in the financial resilience of households in per capita terms begs the question as to why the prime rate was raised again in the absence of any meaningful demand inflation in the economy and when the level of utilisation of manufacturing capacity has declined to its lowest level since records have been kept. It should be pointed out that the main reason for the existence of a record level of unutilised capacity in South Africa’s factories is a lack of sufficient demand, which is likely to be aggravated now that interest rates have been raised again. Furthermore, to the extent that high interest rates are responsible for curbing the demand for manufactured goods, restrictive monetary policy is actually aggravating supply-side inflation.

Household finances lagging GDP

Assessed against the last comparable quarter before the COVID-19 pandemic (Q4 2019), the financial disposition of South African households has improved at an average annual real rate of merely 0.5%, which is marginally lower than the average annual real rate of GDP growth over the past six years (0.6%). The data sets in table 1 confirm the damaging effects of the rate-hiking cycle on the financial resilience of households, Although there has been an improvement since rate cuts started in the third quarter of 2024, further scrutiny of the 20 constituent indicators that comprise the AFHRI indicates the slow growth of the ones that carry the largest weighting in the composite index, namely employment and labour remuneration. It seems clear that economic policy in South Africa has been focussed on trying to drive inflation to extremely low levels at the expense of growth-enhancing policies.

Impact of pension fund withdrawals

Until the third quarter of 2025, the impact of the so-called ‘two-pot’ system had been highly visible in the AFHRI. During the third quarter of 2025, the indicators for long-term insurance surrenders and official pension fund lump-sum payments had increased at abnormally high rates but have now declined year-on-year by 8.9% and 22.1%, respectively. Although the indicator for annuities received remains higher than a year ago, it has declined since the third quarter of 2025. It seems clear that the rush to supplement income via the two-pot system is over, which is to the advantage of household financial resilience in the long term.

Beneficial effect of lower rates

Any doubt over the negative impact of the recent record high levels for the prime lending rate on the financial security of South African households is dispelled by the inverse relationship depicted by figure 2. When the prime rate was lowered to 7% in mid-2020, the AFHRI improved from a Covid-induced low of 104.1 to 113.8 – an increase of more than 9%. The highest prime rate in 15 years then took its toll on the financial resilience of households, which has now recovered as a result of lower interest rates. It is entirely predictable that higher interest rates will erode the spending power of households, especially those that are repaying mortgage loans at rates linked to prime (and the repo rate, as an inference). The inverse also holds, with the AFHRI benefiting from the less restrictive monetary policy that lasted until May 2026.

The decision last year by the Monetary Policy Committee (MPC) of the Reserve Bank to abandon the inflation target range of 3% to 6% and replace it with a target point of 3% has come back to haunt the economy. This decision was made at a time when scholarly international research had indicated a move towards more flexibility in monetary policy, especially inflation targeting. Due to successive oil price shocks, most notably after the Russian military invasion of the Ukraine, it had become clear that central banks need to be more aware of the inability of restrictive monetary policy to combat supply-side cost pressures. By removing the tolerance of the inflation target, the MPC has now painted itself into a corner, with the country’s households having to carry the cost via lower levels of disposable income – at a time when credit extension to households had barely started to recover (in real terms), as illustrated by figure 3.

The policy objective of meaningful employment creation (which is inherent in attempting to foster sustainable high levels of economic growth, which is part of the Reserve Bank’s mandate) has been neglected to the extent that the number of formally employed people in South Africa now virtually equates to the number of unemployed people. Although formal employment has risen to 12.1 million people in the first quarter of 2026, it is only marginally higher than the total number of unemployed people of 12 million (including discouraged work-seekers). Unless the country’s economic policy makers adopt a more accommodating policy approach towards fostering economic growth and employment creation, the sustainability of South Africa’s expansive social security system will remain under threat. The most effective way to combat poverty is to create jobs. The switch in monetary policy from effectively targeting a 3.4% average real prime rate during the tenure of the previous head of the MPC (Ms Gill Marcus) to the range of 6% to 8% followed since 2023 is undoubtedly hampering progress with economic growth and job creation.  

Results of the AFHRI for the fourth quarter of 2025

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 – Q4 2019; quarter-on-quarter; and year-on-year (percentage changes in real terms). The period since the fourth quarter of 2019 is regarded as relevant to gauge whether or not the financial resilience of households has fully recovered from the pandemic. 

An encouraging feature of the latest AFHRI is the positive readings for all three periods listed in table 2, with both the quarter-on-quarter figure of 1.7% real growth and the year-on-year growth of 1.4% managing to beat the real GDP by a healthy margin. For the country’s real GDP, fourth quarter growth only managed to record rates of 0.1% (quarter-on-quarter) and 0.8% (year-on-year).

 The lowering of the prime rate during 2025 predictably led to a strengthening of the AFHRI during the fourth quarter, with 12 of the 20 indicators comprising the index recording positive year-on-year trends and 11 of them also posting quarter-on-quarter growth. 

Other key trends include:

• Concern over the inability to lower the country’s exceptionally high unemployment rate is reflected in the decline of private sector employment in the fourth quarter of 2025, despite a solid performance of retail trade sales in the fourth quarter of 2025.

• Once again, the strongest performance came from the real value of unit trust assets, buoyed by the sterling performance of the all-share index (ALSI) of the Johannesburg Stock Exchange (JSE), which hit an all-time high just before the eruption of war in the Middle East.

• The ratio between household income and debt servicing costs has improved as a result of a modest increase in household disposable income and the lowering of the prime rate.

• The decline in credit impairments by banks (also as a percentage of total bank assets) is a welcome development and could signal more leniency in the granting of credit to households, which is a key driver of aggregate demand and economic activity.

Looking ahead to the results for the first quarter of 2026

Traditionally, South Africa’s economy takes a hit during the first quarter of every year, mainly as a result of lower household consumption expenditure, which accounts for two-thirds of the country’s GDP. This decline is largely the result of a base effect, due to the spike in consumption expenditure during the preceding fourth quarter, when many South Africans receive 13th cheques and when the Black Friday and Christmas shopping sprees occur. The AFHRI dodges this statistical dilemma by also constructing a seasonally adjusted index, which could well improve during the first quarter of 2026, as the most damaging effects of the Middle East war will only be felt during the second quarter of the year.

During the first quarter of 2026, the economy has already received a boost from improved fiscal stability, due to the return to a primary budget surplus (revenue minus non-interest expenditure). This achievement has been noted by all three major international ratings agencies, whilst the country’s long-term bonds have risen in value. Motor trade sales continue to experience new record highs, and the property market remains on a recovery path, with the BetterBond index of home loan applications continuing its recovery since interest rates started declining at the end of 2024. Furthermore, the S&P Global Purchasing Managers’ Index (PMI) for South Africa improved to a level of 51.6 in April 2026 - the highest reading since August 2022. 

Unfortunately, however, the rosy prospects for the first quarter of 2026 may be scuttled during the second quarter of the year, mainly due to the spike in fuel prices and the increase in the prime rate from 10.25% to 10.5%, which has already resulted in banks increasing their deposit requirements for accessing home loans.

Johan Gellatly, Managing Director of Altron FinTech, says the latest data quantifies how precarious the household recovery remains, despite the modest gains recorded in 2025. 

“The numbers tell a sobering story: South Africa now has barely more people in formal employment than out of work altogether. The fourth-quarter index shows households are slowly regaining their footing, helped by the rate cuts of 2025, but a recovery this fragile cannot absorb setbacks. The renewed increase in the prime rate, against a backdrop of near-record unemployment and idle factory capacity, risks stalling the very momentum we should be protecting. The most effective anti-poverty policy this country has is a job, and monetary policy needs to start treating growth and employment as seriously as it treats inflation."