PORTFOLIO AND SELECT COMMITTEES ON FINANCE

Portfolio August 2007

PORTFOLIO AND PORTFOLIO AND SELECT SELECT

COMMITTEES ON COMMITTEES ON FINANCEFINANCE

August 2007


RECENT RECENT INTERNATIONAL INTERNATIONAL

ECONOMIC ECONOMIC DEVELOPMENTSDEVELOPMENTS


Global economic growth remains relatively robust and the outlook continues to be favourable.


The monetary policy stance has generally become conservative…The monetary policy stance has generally become conservative…


……which has helped to contain inflation expectations.which has helped to contain inflation expectations.


Inflation trends in the SADC countries remain mixed.


RECENT RECENT DOMESTICDOMESTICECONOMIC ECONOMIC

DEVELOPMENTSDEVELOPMENTS


The South African economy continued to grow in the first quarter of 2007, though at a slower pace...


...mainly due to a decline in the real value added by the primary ...mainly due to a decline in the real value added by the primary sector.sector.


Although still exceeding the rate of growth in gross domestic Although still exceeding the rate of growth in gross domestic product, the rate of growth in real gross domestic expenditure product, the rate of growth in real gross domestic expenditure

slowed considerably in the first quarter of 2007.slowed considerably in the first quarter of 2007.


Growth in real final consumption expenditure by households moderated...


…alongside a slightly stronger increase in real disposable income of households…


…while household debt as well as household debt service cost as percentage of household disposable income continued their

upward momentum.


By contrast, real final consumption expenditure by general government picked up strongly…


……along with a brisk increase in real gross fixed capital formation.along with a brisk increase in real gross fixed capital formation.


The national saving ratio increased marginally.


Manufacturing conditions remained in firm territory compared with the doldrums of early 2006.


Consumer confidence remains strong.


Business confidence has remained at relatively high levels for anunprecedented nine quarters...


The composite leading business cycle indicator moderated in the second half of 2006, but recently resumed its upward trend...


Consistent and robust growth in the South African economy has spurred on growth in employment.


Nominal remuneration per worker increased significantly in the year to the fourth quarter of 2006 before moderating in the

following quarter.


Strong growth in employment undermined growth in productivity in the first quarter of 2007.


Slow growth in average nominal remuneration per worker was reflected in a modest increase in nominal unit labour cost during

the first quarter of 2007.


Production price inflation reached a recent high in May 2007 before inching lower in June…


…while CPIX inflation breached the upper limit of the inflation target range for the third consecutive month in June 2007.


The current-account deficit narrowed during the first quarter of 2007.


The financial account of the balance of payments remained in surplus in the first quarter of 2007 following record inflows for

the 2006 calendar year.


Gross gold and foreign exchange reserves rose further during the second quarter of 2007.


The exchange rate of the rand recovered during the second quarter of 2007 following a decline in the first quarter of 2007.


Growth in M3 continued at an exceptionally strong pace in the second quarter of 2007, bolstered by positive wealth effects and

robust economic activity.


Growth in banks’ total loans and advances maintained a firm pace in the second quarter of 2007 despite securitisation transactions

during this period.


Money-market rates continued their upward trend, tracing the change in the repurchase rate during the second quarter of 2007.


From late February 2007, the yield on long-term government bonds increased significantly...


...and the yield curve moved higher.


Inflation expectations rose with the release of worse-than-Inflation expectations rose with the release of worse-than-anticipated inflation data and the high price of oil.anticipated inflation data and the high price of oil.


Trading activity in the secondary share market reached new highs...


...as share prices continued to register record levels....as share prices continued to register record levels.


Although decelerating, twelve-month growth in house prices remained strong.


Government finances continued to be supportive of a disciplined monetary policy environment.

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