PORTFOLIO AND SELECT COMMITTEES ON FINANCE

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PORTFOLIO AND SELECT COMMITTEES ON FINANCE

• September 2006

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RECENT INTERNATIONAL ECONOMIC DEVELOPMENTS
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Growth in global economic activity was sustained
in the first half of 2006...
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...notwithstanding the exceptionally high and
volatile price of crude oil...
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...and the further tightening of monetary policy
in major economies

• Key central bank interest rates
• Per cent
• Countries 1 January 2006
  14 September 2006 Latest change
• (Percentage points)
• United States 4,25 5,25 29 Jun 2006 (0,25)
• Japan 0,00 0,25 14 Jul 2006 (0,25)
• Euro area 2,25 3,00 9 Aug 2006 (0,25)
• United Kingdom 4,50 4,75 3 Aug 2006 (0,25)
• Canada 3,25 4,25 24 May 2006 (0,25)
• Denmark 2,25 3,00 4 Aug 2006 (0,25)
• Sweden 1,50 2,50 6 Sep 2006 (0,25)
• Switzerland 0,50 1,50
  1,25 2,25 14 Sep 2006 (0,25)
• Australia 5,50 6,00 2 Aug 2006 (0,25)
• New Zealand 7,25 7,25 8 Dec 2005 (0,25)
• Israel 4,50 5,50 1 Aug 2006 (0,25)

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...and the further tightening of monetary policy
in major economies (contd)

• Key central bank interest rates
• Per cent
• Countries 1 January 2006
  14 September 2006 Latest change
• (Percentage points)
• South Korea 3,75 4,50 10 Aug
  2006 (0,25)
• Taiwan 2,25 2,50 29 Jun 2006
  (0,125)
• Thailand 4,00 5,00 7 Jun 2006 (0,25)
• Brazil 18,00 14,25 30 Aug 2006 (-0,50)
• Chile 4,50 5,25 13 Jul 2006
  (0,25)
• Mexico 8,25 7,00 21 Apr 2006 (-0,25)
• Czech Republic 2,00 2,25 27
  Jul 2006 (0,25)
• Hungary 6,00 7,25 29 Aug 2006
  (0,50)
• Poland 4,50 4,00 28 Feb 2006 (-0,25)
• Russia 12,00 11,50 26 Jun 2006 (-0,50)
• South Africa 7,00 8,00 3 Aug 2006 (0,50)

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to contain heightened global inflationary
pressures which partly reflected rising energy
prices.

• World economic outlook Consumer prices
• Annual percentage change in consumer prices
• 
  Actual Projections
• 
  2005 2006 2007
• World 3,7 3,8 3,7
• Advanced economies 2,3 2,6 2,3
• United States 3,4 3,6 2,9
• Japan -0,6 0,3 0,7
• Euro area 2,2 2,3 2,4
• United Kingdom 2,0 2,3 2,4
• Newly industrialised Asian
• economies 2,2 2,2 2,2
• Emerging-market and
• developing countries 5,3 5,2 5,0
• Africa 8,5 9,9 10,6
• South Africa 3,4 4,6 5,7
• Central and eastern Europe 4,8 5,3 4,6
• Developing Asia 3,5 3,8 3,6
• China 1,8 1,5 2,2

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In the United States core inflation levelled off
while interest rates most recently remained on
hold.
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In the euro area inflation moderated while
interest rates increased.
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In the United Kingdom inflation and interest
rates increased.
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With inflation edging into positive territory,
interest rates increased in Japan.
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The outlook of global growth remains strong

• World economic outlook Real gross domestic
  product
• Annual percentage change in real GDP
• 
  Actual Projections
• 
  2005 2006 2007
• World 4,9 5,1 4,9
• Advanced economies 2,6 3,1 2,7
• United States 3,2 3,4 2,9
• Japan 2,6 2,7 2,1
• Euro area 1,3 2,4 2,0
• United Kingdom 1,9 2,7 2,7
• Newly industrialised Asian
• economies 4,5 4,9 4,4
• Emerging-market and
• developing countries 7,4 7,3 7,2
• Africa 5,4 5,4 5,9
• South Africa 4,9 4,2 4,0
• Central and eastern Europe 5,4 5,3 5,0
• Developing Asia 9,0 8,7 8,6

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despite the moderation in growth in the United
States
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and Japan
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as growth in the euro area continued to rebound

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and growth in the United Kingdom continued to
gain momentum.
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Closer to home, inflation trends in the various
SADC countries are diverging.

• SADC inflation
• Annual percentage change in consumer prices
• 2004
  2005 Jun 2006 Jul 2006 Aug 2006
• Africa 8,0 8,5
• Angola 43,6 23,0 12,9
• Botswana 6,9 8,6 12,5 11,9
• Lesotho 4,4 4,0 6,6
• Madagascar 14,0 18,4 13,6 11,6
• Malawi 11,4 15,5 15,3 14,9
• Mauritius 3,9 5,6 7,6 10,1
• Mozambique 6,4 10,1 14,7 11,1 10,6
• Namibia 4,1 2,4 5,3 5,1
• South Africa 1,4 3,4 4,9 5,0
• Swaziland 3,4 4,8 5,3
• Tanzania 4,1 4,4 6,8 5,4
• Zambia 18,0 18,3 8,5 8,7 8,0
• Zimbabwe 350,0 237,8 1 184,6 993,6
• Not available

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RECENT DOMESTICECONOMIC DEVELOPMENTS
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The growth rate of the South African economy
accelerated in the second quarter of 2006
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as strong momentum in the secondary and
tertiary sectors countered a decline in the
primary sector.
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Domestic expenditure continued to expand, across
all the components of domestic final demand
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as reflected by the strong increase in
household consumption expenditure...
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supported by the improvement in the real
disposable income of households.
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However, household debt levels increased to a new
record high.
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Growth in money supply was exceptionally strong
in the second quarter of 2006
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and banks total loans and advances also
recorded vigorous increases.
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Real final consumption expenditure by general
government rose strongly
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as did real gross fixed capital formation by
all institutional sectors.
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On balance, the national savings ratio increased
moderately.
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Employment increased in both the private and
public sectors
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while the rate of increase in nominal wages per
worker in the private sector outpaced that in the
public sector.
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Consistent with the increase in overall
employment, labour productivity declined
marginally.
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The combination of an acceleration in
remuneration and deceleration in productivity led
to a significant increase in nominal unit labour
cost in the formal non-agricultural sector.
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In the manufacturing sector unit labour cost
remained well contained.
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South Africas trade deficit widened as the brisk
increase in gross domestic expenditure
contributed to vibrant merchandise imports.
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Notwithstanding a slightly smaller surplus on the
financial account, capital inflows continued to
finance the deficit on the current account.
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Sizeable portfolio inflows more than offset
direct and other investment outflows.
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The Banks gross gold and foreign reserves
continued to improve as did the international
liquidity position
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... which contributed to a further increase in
the level of import cover.
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The depreciation in the exchange rate of the rand
mainly took place in May and June 2006.
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Reflecting mounting price pressures, CPIX
inflation increased significantly in recent
months while remaining within the inflation
target range.
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CPIX inflation increased largely on account of an
increase in the price of petrol and food.
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CPIX goods inflation increased sharply while
services inflation levelled off.
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Production price inflation accelerated strongly
from the second quarter of 2006.
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Money-market interest rates trended higher in
anticipation of and partly in response to
monetary policy tightening.
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From early May to mid-June 2006, yields on
long-term bonds increased significantly alongside
the depreciation in the exchange value of the
rand...
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and the yield curve moved upwards and steepened
at the short end.
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Trading activity in the secondary share market
reached new highs .
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as the all-share price index increased to a new
record level in September.
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In the real-estate market the pace of increase in
house prices decelerated.
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Government finances continued to be supportive of
a disciplined monetary policy environment.
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