South African Economy Essay Example | Topics and Well Written Essays - 1500 words

southbound African Economy - Essay Example4Governor Tito Mboweni signaled repeatedly in the past month that lending rates were set to face lifting again as underlying inflation become more generalized, while stricter lending rules had so far failed to dent robust consumer spending and opinion implore. 5 For the current business cycle, however, the hikes that were made to the countrys interest rates recently are generally being considered to be the last.The causes of high inflation in South Africa primarily are two external causes The current price drivers are rising anoint and international food prices, simply because demand outstrips supply in the international market for these products. The two are linked because the immediate effect of increased fuel prices is that it becomes more expensive to produce food, but this on its avouch does not necessarily lead to a general price rise. 6 Besides the policies of the South African government are not above contempt, and in fact these populist policies to appease some sections of the countrymen without concern or acknowledging the external causes in plunging the economy into despair. Increased interest rates bequeath have a direct effect on tax collections and therefore a direct effect on subsidizing the poor. This will lead to a rapid depletion of budget surplus, and to run across this gap the government has no option but to print money to fill in the gap. 7 This is leading South Africa towards hyperinflation.Impact of high oil prices on South African economyThe high oil prices have severely affected oil importing countries like South Africa, whose capacity to hand over electricity has been affected and which has forced them to ration electricity. 8 Adding further, The high price of oil impacts directly on firms, consumers and the government. First, it increases the domestic price of petroleum products, raises the follow of many immediate inputs, and as a result leads to higher production costs. Consequentl y firms may reduce their labor demand, investment and output. Second, as the short-run demand for oil is highly inelastic, consumers are forced to reduce their consumption of other goods and services to pay for higher energy bills. 9Moreover, the rising oil prices will also affect South Africas balance of payments, as exchange rates will work against them in international trade, this will reduce their level of stinting activity since the amount of affordable oil that South Africa will be able to purchase shall be dramatically reduced under present conditions. Consumers and firms could specify to reduce their oil consumption but since the demand for oil is highly inelastic in the short-term, they may be compelled to reduce their consumption of other merchandise goods. Doing so could undermine economic growth especially if capital goods imports are affected. 10. Poverty is another issue facing the South African economy, since the current polity will lead to more widespread poverty as lack of adequate fuel will drive up the cost, with the cost of transportation of goods and