A major feature of the South African economy during 1983 and so far in 1984 has been the economic upswing from about April 1983. Although the increases in real output,income and employment associated with this recovery were highly desirable and beneficial in their own right,the upswing has proved to be unsustainable in the face of adverse extraneous developments and undesirableinternal spending excesses.Accordingly,the authorities have been required to takestrong remedial policy action in order to help bring about the necessary short-term adjustments in the economy with a view to achieving balanced and sustainable economic growth in the longer term.The upswing had its origin in developments during the second half of 1982 and in early 1983, which created a set of circumstances normally associated with an export-led recovery. In early 1983 the gold price had risen from its low of less than US $300 per fine ounce in June 1982 to more than $500 per fine ounce, the previously existing deficit on the current account of the balance of payments had already been transformed into a surplus and this improvement of the current account had been accompanied by a net inflow of capital and a rise in net foreign reserves.The rand had accordingly begun to appreciate and interest rates had declined sharply.Although the impending export-led recovery was still narrowly based on an increase in the gold price, the expectations were that the base would soon be broadened by the beneficial effect of the economic recovery in the United States and other industrial countries on South African exports.In the second half of February 1983,however, the gold price declined precipitously by more than US $100 per fine ounce.This meant that the base for a new economic upswing had largely fallen away,but a climate conducive to economic recovery had already been created and remained largely intact. Not even the fact that the economic upswingin the industrial countries turned out to be weaker than anticipated and the adverse effects of the prevailing drought could suppress the optimistic business mood and high degree of consumer confidence. This situation was in part due to the favourable financial conditions prevailing at the time,including low rates of interest and an increase in wealth resulting from the preceding rise in security and real estate prices.Moreover,from March onwards,government expenditurestarted to rise rapidly,causing the"deficit before borrowing"to be financed partly by bank credit and the rate of growth in the money supply to accelerate.In addition to a considerably higher rate of increase in real government consumption expenditure, the increase in real private consumption expenditure began to accelerate significantly from the first quarter" of 1983.What started off as an impending export-led recovery, therefore, turned into a consumption-led economic upswing. It was not before the fourth quarter of 1983 that the upswing gathered support from an increase in the volume of South African exports. Throughout the ensuing period to June 1984 real private as well as government consumption expenditure continued to rise at an accelerating rate and remained the main driving force of the upswing. This increase in consumption accounted almost entirely for the rise of 10½ per cent in real gross domestic expenditure from the second quarter of 1983 to the second quarter of 1984.The positive effects of the upswing were visible in an increase of 7½per cent in the real gross domestic output of the non-agricultural sectors of the economy from the first quarter of 1983 to the second quarter of 1984. Owing to a decline in real agricultural output, the recovery intotalreal output from its low in the second quarter of 1983 was about 6 ½ per cent. Another positive effect was the reversal of the decline in non-agricultural employment in the middle of 1983 and a concomitant decrease in unemployment.The first six months of the economic upswing, namely the second and third quarters of 1983, were also characterised by a number of other favourable developments. Firstly,