South African savings grew by 15.4% in 2021 – but tough times ahead

The Allianz Global Wealth Report 2022 revealed that the gross financial assets of South African households rose 15.4% in 2021.

The report is an annual study by Allianz, which puts the asset and debt situation of households in almost 60 countries under the microscope.

2021 might have been the last year of the old “new normal”, with bullish stock markets powered by monetary policy.

Households benefitted handsomely, and global financial assets grew by 10.4% in 2021, reaching EUR 233 trillion.

The main growth driver was the stock market boom, contributing around two-thirds to wealth growth in 2021.

Fresh savings remained elevated. Despite dropping by around 19% in 2021, with EUR 4.8 trillion, they came in at 40% above the level seen in 2019.

Globally, mainly driven by the developments in the US at the end of 2021, private households held 27% of their gross financial assets in bank deposits, 42% in securities and 28% in insurance and pension products.

This strong capital market orientation might turn out to be a double-edged sword in the coming years.

Private households benefitted nicely from higher stock market returns in recent years, but they are now more vulnerable to the risk of a major capital market setback.

At the same time, the dwindling popularity of insurance and pension products give further reason for concern as in ageing societies, there is an increasing need for private pension provision

Turning point in 2022

2022 marks a turning point. The war in Ukraine choked the recovery post-Covid-19 and turned the world upside down.

Inflation is rampant, energy and food are scarce, and monetary tightening squeezes economies and markets.

Households’ wealth will feel the pinch. Global financial assets are set to decline by more than 2% in 2022, the first significant destruction of financial wealth since the Global Financial Crisis (GFC) in 2008.

In real terms, households will lose a tenth of their wealth.

In contrast to the GFC, which was followed by a relatively swift turnaround, this time, the mid-term outlook is rather bleak.

The average nominal growth of financial assets is expected to be at 4.6% until 2025, compared with 10.4% in the preceding three years.

“2021 brings an era to an end,” said Ludovic Subran, chief economist of Allianz. “The last three years were nothing but extraordinary. It was a bonanza for most savers.”

However, the coming years will be different, with the cost-of-living crisis putting the social contract to the test.

“Policymakers face the enormous challenge to master the energy crisis, secure the green transformation and spur growth while monetary policy hits the brakes hard,” said Subran.

“There is no more room for policy mistakes. Key for success are innovative and targeted measures at the national and European unity at the supranational level.”

South Africa

The gross financial assets of South African households rose by a strong 15.4% in 2021 to reach EUR 690 billion.

It represents the fastest increase since the financial crisis and is well above its 10-year average of 8.0%.

Part of the explanation is inflation which averaged 4.5% in 2021. Yet, the increase in real wealth remains remarkable.

All asset classes contributed to the strong performance – bank deposits grew by 8.6% last year, securities by 20%, and insurance and pensions assets by 14.7%.

Insurance and pensions assets remain by far the most popular in South Africa, with a portfolio share of 56%.

Bank deposits, which play a dominant role in most other emerging markets, have a share of only 13%.

Liabilities’ growth, too, accelerated in 2021, clocking in a 6.3% increase in South Africa, slightly above the long-term average of 5.7%.

The debt ratio (liabilities in % of GDP) dropped to 42%, thanks to strong economic activity.

South African households’ net wealth grew by 18.1% in 2021, reaching EUR 550 billion.

With net financial assets per capita of EUR 9,220, South Africa climbed one rung to place 39 in Allianz’s ranking of the 20 richest countries.