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Commodities dip puts damper on oil benefits

Cape Town - Declining iron and platinum prices are putting increasing pressure on South Africa’s economy, which is likely to enjoy more significant benefits from the oil price drop only in the second half of the year, according to experts.

The International Monetary Fund has already cut SA’s economic growth prospects for this year by 0.2% to about 2.1%. The economy is expected to take a further pounding after Eskom this week started a load shedding programme analysts say will impact productivity.

READ: LIVE: Eskom starts stage 1 load shedding

Declining oil prices are likely to bring some form of respite for the industrial, mining and manufacturing sectors but such benefits could become more significant only during the second half of this year. Lower commodity prices could also pose growth challenges for the country’s resource-heavy economy.

Research and advisory firm Frost and Sullivan on Wednesday said in its research report Top Economic Influences in South Africa for 2015 that “opportunities for oil importing countries will become more significant in the second half of 2015”.

Declining oil prices will lead to decreasing fuel prices in South Africa and will lower manufacturing input costs, the report said. The export sector is also projected to rise on the back of lower manufacturing costs, while consumer demand in major export destinations such as Europe is expected to be stronger.

“This will alleviate the pressure on consumer prices in 2015. The Reserve Bank will adjust their rate hiking cycle and should only consider raising interest rates later in H2 of 2015,” the report said.

Major threats to SA’s growth prospects this year include labour and protest action, uncertainty in the European Union market and the Chinese property downturn.

Although the declining oil price, which slipped to $49 per barrel on Wednesday, is expected to be a boon for importers of the commodity, continued weaker prices will be “particularly troublesome to oil producing countries (that are) not aligned with Opec”.

Frost and Sullivan said lower oil prices will also mean “less pressure on the rand and current account” and will “result in less payment for imports”. However, the report added, “iron and platinum prices have been steadily declining, placing pressure on South Africa’s exports”.

Despite the problems expected from lower prices of the mineral commodities SA exports and looming power problems, higher consumer demand has been projected for the second-half period.

NOW READ: Matt Sharratt: The real cost to GDP of Eskom’s load shedding

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