Following a period of cyclical downswing lasting about forty months, the South African economy began to recover towards the end of 1977. During the first half of 1978 the real gross domestic product increased moderately, after having declined slightly during the second half of 1977. For the year under review* as a whole, a small negative rate of growth was recorded. A feature of the recovery during the first six months of 1978 was that an increase in real economic activity in manufacturing and trade became an expansionary force, after declines in the real value added by these sectors had contributed to the progressively decreasing rates of economic growth during 1976 and 1977. Part of the increased activity during the second quarter of 1978, however, reflected the unusual rise in consumer expenditure prior to the introduction of a general sales tax on 3 July.The upturn in real economic activity was accompanied by a slight increase in non-agricultural employment during the first quarter of 1978, the latest period for which statistics are available. This improvement was confirmed by a decline in the number of registered unemployed Whites, Coloureds and Asians during the first half of 1978 and in the number of unemployed Blacks during the period October 1977 to February 1978.