In South Africa many people are happy with the serious drop in the price of a barrel of oil with the price currently sitting at around $48 a barrel and economists expect it to go as low as $40.
While this is great in the short term and for us as fuel becomes much cheaper and in turn other commodity prices may drop in the short term, in the long run and in the bigger picture of things this poses a serious problem.
If the price of oil has dropped so drastically from the last year this can only generally mean one thing the demand has dropped and why would the demand drop ? lack of economic activity. With Europe struggling at the moment and China also on a slow down this situation needs to be analysed further.
A slow down in economic activity world wide will affect everybody and each country's ability to boost its GDP. A country may be able to produce various goods however not be able to export as there will not be enough demand and in turn prices will drop.
South Africa at this point in time is in an advantageous position, with investors now rushing to invest in something more stable the demand for gold has increased and the price in turn. Being a large exporter of gold this could give the economy and the rand a boost.
The rand has weakened drastically I believe due to poor government, a great deal of strike action in important sectors of business and lastly due to Europe's slow down. South Africa exported a great deal to Europe with them slowing down and not buying as much from us this has caused a decline in the rand and lack of foreign trade and currency coming into the country. We are in others words importing a great deal more than we are exporting and struggling to keep the economy thriving.
It is interesting to see how various factors in the economic world has a knock effect and a vicious circle begins, A large drop in oil prices does not necessarily mean a good thing in the long term yet it may help South Africa in some ways as investors are now buying gold as a safer investment. However the drop in economic activity world wide means South Africa does not export as much as before in turn affecting us in a negative way,
It will be interesting to see the future where oil supplies are scarce or non existent how some countries will survive and how this will in turn affect the economic world. The UAE has seen this coming from a while back and has invested huge amounts and continues to do so in the tourism sector the infrastructure is mesmerising, but will this be enough to sustain them?
It is all a catch 22 and a difficult situation to control or monitor. 2015 seems like it is going to be a very interesting economic time world wide we shall just have to wait and see what happens...!
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