By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The state of the consumer: Insights from the 3Q25 Quarterly Bulletin
South African consumers showed cautious but noticeable improvement during the second quarter of 2025 (2Q25). This modest recovery was largely supported by rising real disposable income and successive interest rate cuts, which helped ease financial pressure on households. However, deep-rooted structural challenges, especially in the labour market, continue to hinder a broad-based and sustainable recovery. Here's what the 3Q25 Quarterly Bulletin reveals:
Consumption and income dynamics
Household spending gained momentum, with real final consumption expenditure rising by 0.8% q/q for 2Q25, up from 0.5% in 1Q25. This was underpinned by continued growth in real disposable income. Notably, spending shifted toward discretionary items, with increases in durable goods, semi-durable goods, and services, while non-durable goods saw a further decline. This pattern suggests that lower inflation and interest rate cuts have boosted purchasing power, enabling consumers to invest in higher-value items. If July retail sales are any indication, this trend may persist into Q3.
Household financial health and deleveraging
A key sign of improving consumer health is the ongoing deleveraging trend. The household debt-to-income ratio edged down to 62.4% in Q2 from 62.7% in Q1, indicating that income is growing faster than new debt. Additionally, the cost of servicing debt fell slightly to 8.8% of disposable income from 8.9% previously, thanks to lower interest rates, freeing up capital for other uses. Household net wealth also improved, driven by a strong stock market performance, and accelerating domestic property values. Early Q3 data suggests this momentum is continuing.
Persistent labour market and credit constraints
Despite gains in spending and financial metrics, consumers remain vulnerable due to persistent labour market weakness and cautious credit extension. The official unemployment rate rose to 33.2% in Q2 from 32.9% in Q1, while graduate unemployment climbed to 12.2%, highlighting challenges even for skilled workers. This acts as a structural ceiling on consumption growth. Similarly, credit growth remains subdued, with lenders and consumers alike showing relative restraint. While household deposits are stable, the reluctance to take on new debt suggests consumers remain focused on repairing balance sheets rather than rapidly expanding them.
Conclusion: A cautious recovery amid structural vulnerability
The South African consumer is navigating a dual reality. On one hand, financial health is stabilising, supported by disciplined debt management, real wage growth, and monetary policy easing. On the other, the labour market remains fragile. Until unemployment trends reverse meaningfully, the core consumer base will continue to face financial stress and insecurity. The current environment reflects a cautious recovery, but entrenched vulnerability.
Week in review
SA's gross foreign exchange reserves decreased from $70.4 billion in August to $69.7 billion in September. While gold reserves continued to climb, supported by the increase in the dollar-denominated gold price, and Special Drawing Right (SDR) holdings increased, foreign exchange reserves fell. The overall external liquidity position reflected the balance between a $474.6 million loan from the African Development Bank that was countered by a $2 billion loan repayment, asset price movements, as well as foreign exchange swaps conducted for liquidity management purposes.
Manufacturing activity remained subdued in August, with production contracting by 1.5% y/y. The largest drag came from the basic iron and steel, non-ferrous metals, and machinery division (-5.9%, contributing -1.3ppts), followed by food and beverages (-3.0%, -0.7ppts). However, seasonally adjusted output rose by 0.4% m/m, partially offsetting declines of -0.8% in July and -0.1% in June. Encouragingly, the Manufacturing PMI rebounded to 52.2 in September, its highest level in nearly a year, signalling improved momentum, though business expectations remain cautious amid global economic uncertainty, a rise in imports of manufactured goods, and logistical constraints.
Week ahead
On Tuesday, mining production for August will be released. Mining production (not seasonally adjusted) expanded by 4.4% y/y in July, accelerating from 2.5% (previously 2.4%) in June. Seasonally adjusted output also rose by 1.0% m/m, a fifth consecutive monthly increase, providing early signs of continued momentum in GDP growth.
On Wednesday, retail sales data for August will be released. Retail sales showed a strong performance in July, registering 5.6% y/y, up from a softer 1.7% in June. This was the 17th consecutive month of positive year-on-year growth. On a month-on-month basis, volumes rebounded to 2.1%, following declines of 0.4% and 0.1% in May and June, respectively. The strength in the retail sector, particularly in non-essential categories, reflects improving household purchasing power and balance sheets, as well as less restrictive monetary policy.
