Tag Archives: Moody’s

South Africans still falling further into debt

Data-driven consultancy Eighty20, in partnership with Xpert Decision Systems (XDS), has released its 2025 Q1 Credit Stress Report, providing a comprehensive analysis of consumer credit behaviour in the context of major economic and geopolitical developments.

The report explores how the first quarter unfolded amid global uncertainty, particularly following the outcome of the US election and president Trump’s tariff policies, which have introduced renewed volatility into global markets.

While the full impact on South Africa’s economy remains unclear, early indicators point to rising financial stress.

Economic outlooks have dimmed. Moody’s Ratings and the Bureau for Economic Research (BER) both revised South Africa’s 2025 real GDP growth forecast from 1.8% to 1.5%, reflecting increased caution.

Bloomberg reported last week that a median forecast of 26 economists surveyed May 22-27 suggested growth would be 1.2% this year.

Last month, the forecast was reduced to 1.5% from 1.7%. For next year, it was shaved by 0.2 percentage points compared with last month’s poll to 1.6%.

South African Reserve Bank (Sarb) governor Lesetja Kganyago announced a 25-basis-point cut to the benchmark repo rate on Thursday, lowering it to 7.25% and bringing some relief to indebted consumers.

However, the Sarb trimmed its GDP projections, with expected growth of 1.2% this year, rising to 1.8% by 2027.

The South African credit market continued to grow in Q1 2025. The number of credit-active consumers increased by 2% year-on-year, while total credit products rose by 4%.

Outstanding loan balances reached R2.56 trillion – up R127 billion (5.3% YoY) – with credit card and retail credit products driving over 7% growth.

However, this expansion came with mounting strain:

  • Overdue balances climbed to R208 billion, a R25 billion increase year-on-year, now accounting for 8.1% of all debt.
  • Home loan overdue balances rose by 21% YoY, while credit card delinquencies increased 18%.

The number of loans in arrears grew for the first time in two years, adding 353,395 accounts and bringing the total to 17.97 million.

Three-quarters of overdue debt is concentrated among the top three income segments: Middle Class, Heavy Hitters, and Comfortable Retirees – indicating that financial stress is widespread, even among higher earners.

This is despite three interest rate cuts over the past year and easing inflation.

Consumers are allocating a larger portion of their income to debt:

  • The average installment-to-net-income ratio rose to 28%, nearly a third of take-home pay.
  • Among Heavy Hitters (R30,000–R120,000 monthly income), this figure jumps to 48%.
  • The Middle Class (R8,000–R30,000) spends 37%—the only segment above the national average.
  • Comfortable Retirees and the Mass Credit Market allocate 21% and 19%, respectively.

Within the middle class, credit demand surged, with over one million new loans issued in Q1 – 734,081 of which were unsecured. While the total unsecured loan balance fell slightly to R132 billion, overdue balances for these loans rose by 2%, and credit card arrears climbed 5%.

More than 5,000 individuals from high-earning segments became credit-active for the first time. Remarkably, they accounted for 15% of total new loan balances, highlighting how quickly debt can accumulate for new borrowers, according to Eighty20.

Collectively, these higher-income consumers now hold 65% of the country’s total credit balances, which grew 2.5% during the quarter.

Eighty20 attributes much of the growing financial pressure to the escalating cost of living, echoing findings from DebtBusters’ Q1 2025 Debt Index.

Despite a modest recovery in consumer confidence and the introduction of the ‘two-pot’ retirement system offering some relief, more South Africans are turning to personal loans to bridge the gap between stagnant income and rising expenses:

Ninety one percent of individuals entering debt counselling in Q1 had at least one personal loan—a record high, while 37% held a payday (one-month) loan.

While optimism may be returning, personal and payday loans remain a financial crutch as incomes fail to keep up with the cost of living, said Benay Sager, executive head of DebtBusters.

Long-Term trends underscore financial strain over the past nine years:

-Electricity tariffs have surged 135%.
-Petrol prices are up 88%.
-Cumulative inflation has reached 52%.

As a result, South Africans’ purchasing power has declined by 53%. Nominal incomes for new earners are now 1% lower than in 2016, while those earning R35,000 or more have seen modest gains of 11%.

According to DebtBusters, low-income consumers (earning R5,000 or less) use 76% of their income for debt, while high-income earners (R35,000+) spend 77% – the highest levels recorded since 2016.

On a more positive note, the number of consumers completing debt counselling has grown elevenfold since 2016, suggesting that more South Africans are actively seeking paths to financial recovery.

Calls for interest rate cut as unemployment worsens and economy falters

Amid a deepening jobs crisis and sluggish economic growth, Samuel Seeff, chairman of the Seeff Property Group, has issued a call for the South African Reserve Bank (SARB) to slash interest rates by at least 50 basis points at its upcoming Monetary Policy Committee (MPC) meeting.

His appeal follows the release of bleak unemployment data, revealing that 237,000 more South Africans lost their jobs in the first quarter of 2025.

The official unemployment rate has now climbed to 32.9% – up from 31.9% – with 8.2 million people unemployed. Under the expanded definition, that number rises to 12.7 million, representing 43.1% of the workforce.

This troubling trend is occurring against the backdrop of repeated downgrades to South Africa’s economic outlook.

Both the International Monetary Fund (IMF) and ratings agency Moody’s have cut their 2025 growth projections to just 1%, following a mere 0.6% expansion in 2024.

“The continued economic stagnation and rising unemployment is simply untenable,” said Seeff.

He warned that the SARB’s cautious stance on inflation is no longer justified, particularly as consumer price inflation fell to 2.7% in March – well below the Bank’s 3%–6% target range.

“The risks to the stability of South Africa far outweigh the Reserve Bank’s overly cautious approach to inflation concerns, especially since inflation has trended around the bottom of the Reserve Bank’s target range since late last year, falling to just 2.7% for March. This is below the target range.”

Despite declining inflation, interest rates remain 100 basis points above pre-Covid levels. Seeff notes that this persistent rate gap is among the highest globally, making it increasingly difficult for businesses and households to thrive.

“It should be noted too that the gap between the interest rate and inflation in South Africa is among the highest in the world, stifling growth.”

Seeff argued that prolonged high interest rates have severely hampered economic activity and weighed heavily on the property market.

He said the prolonged period of high interest rates has demonstrably hampered economic growth and placed significant strain on the economy and property market.

The recent marginal rate cuts have now proven insufficient to stimulate meaningful recovery within the property market with FNB recently reporting that sales volumes are still below pre-pandemic levels.

While global central banks begin to pivot towards easing, the SARB has remained on hold. The Bank of England and European Central Bank recently trimmed rates by 25 basis points. Although the US Federal Reserve opted to keep its rate unchanged, signs of progress in US-China trade relations – including a temporary tariff relief deal – have brought renewed optimism.

“We have recently seen the Bank of England and the European Central Banks cut their rates by 25bps. While the US Fed kept its rates unchanged, that was expected given the impact of the US-China trade war.”

On this front too, progress has been made with recent meetings between the US and China and a temporary tariff relief deal “That means the Bank’s primary justification for maintaining high interest rates have now diminished,” Seeff said.

“Inflation is below the target range, the global economy is settling, VAT has been scrapped, and after some volatility, the rand has stabilised. There is therefore no reason for the Bank not to step in with a meaningful rate cut of at least 50bps. South Africa can no longer wait, the time for action is now.”

Some economists echo Seeff’s sentiment and predict that rate relief may come as soon as May, although the consensus is for a cut later in the year.

Annabel Bishop, chief economist at Investec, expects the SARB to begin cutting rates in July and November, by 25 basis points each. “With CPI inflation expected to be at the inflation target midpoint of 4.5% y/y over the next two years, the time period the Reserve Bank’s MPC targets, further cuts in the domestic interest rate cycle are expected.”

Bank of America (BofA) economists are more optimistic, projecting that South Africa may see two consecutive rate cuts – in May and July -due to improved global conditions and easing inflationary pressure.

Casey Sprake, economist at Anchor Capital, believes that falling oil prices—driven by increased OPEC production – could provide the SARB with enough room to begin cutting rates immediately.

“While the next move by the cartel remains difficult to predict, the current lower oil price environment is clearly beneficial for South Africa. Given oil’s significant weighting in the inflation basket, we expect headline inflation to remain subdued in the near term, providing some breathing room for monetary policy,” Sprake said.

“As a result, we anticipate a 25 basis point interest rate cut at the upcoming Monetary Policy Committee (MPC) meeting in late May, followed by an additional cut at the subsequent meeting. However, from July onwards, we expect inflation to begin edging higher again, largely due to base effects.”

Economists agree that the SARB will weigh several critical factors before making its next move.

South Africa’s inflation rate dropped to 2.7% in March 2025, the lowest level since June 2020. This has been attributed to falling fuel prices and a moderation in education costs.

The Reserve Bank has revised its 2025 growth forecast downward to 1.7%, citing weaker domestic demand and ongoing supply constraints.

While global uncertainties remain, recent stability in currency markets and reduced trade tensions – particularly between the US and China – may support a shift toward monetary easing.

A rate cut in May could signal a turning point – or missed opportunity—for South Africa’s economic recovery.