Oil slump stops interest rate rise
Local economist sheds light on what is in the pipeline for 2015.
THIS year will offer businesses and consumers a mixed bag of pros and cons.
The good news is interest rates are forecast to stay put throughout this year and for most of next year, since oil prices more than halved since the middle of last year.
According to Deputy Dean in the Faculty of Commerce Administration and Law at the University of Zululand (Unizul), Dr Irrshad Kaseeram, it should stay fixed while dominant world economies are experiencing slowdowns and showing a reduced demand for oil.
‘China is expected to slow down further next year as well and the competition from US oil producers has been so severe that oil prices are likely to remain low for the next year or so, until there is a turnaround in the world and demand picks up – that is only expected to happen late 2016,’ said Kaseeram.
Unfortunately, these economies are some of SA’s major trading partners and their low demand for our goods, especially raw materials, will put pressure on the economy.
Growth prospects
Kaseeram forecasts meagre economic growth at less than 2%.
‘Our potential growth has decreased from 3.5 to 2.5%.
‘SARB (SA Reserve Bank) predicts we will grow at 2.5%, but the IMF (International Monetary Fund) reduced our growth prospects to 2.1%.
‘We are borrowing more from the rest of the world than selling to them, which is reflected in our huge account deficits.’
Biggest obstacles
Electricity supply remains the nagging issue thwarting the economy, says Kaseeram.
‘In the short term, authorities should remove the stumbling blocks preventing private producers from supplying electricity into the national grid.
‘And the long, drawn-out strikes in the platinum and manufacturing industries have affected business confidence in the entire economy negatively.
‘Only strong political intervention can resolve the labour relations challenges the country faces.
‘Overall investment by the private sector dropped to a 10-year low this year – property rights uncertainties in the mining industry undoubtedly played a big role in this respect.’
Threats for Richards Bay
‘Richards Bay serves the mining, transport, and port linkages so if uncertainties and disinvestment in the mining sector arise, it sends shock waves to the local region, which means local companies will cut back on labour and services in order to remain profitable.
‘This will adversely affect employment in the area and the ripple effect will extend to the retail and consumer services sectors as well.
‘Hence, it is in our general interest that government, the private sectors and the labour front all speak to one another and put South Africa first.’
