Looking at spending trends, balance of payments developments and the accelerating rate of monetary expansion, the Reserve Bank's Annual Economic Report for 1988, as released in August of that year, concluded that the South African economy had by then moved into the "advanced" stages of a fairly typical, if only moderately vigorous, upswing. It also considered that the fairly marked slowdown of growth in the second quarter of 1988 might well signify the start of a levelling- out of the real growth rate in the more final stages of the then current economic expansion. The Report accordingly held prospects for the real growth rate in the year 1988 to be of the order of2 ½ per cent.In the event, the second half of 1988 saw a continuation of growth at a rather stronger-than-expected average rate that broadly matched the average growth rate of the first half of the year. Real output growth during the calendar year 1988 was thereby brought to somewhat more than 3 per cent; the increase in aggregate real gross domestic expenditure amounted to a major 7 per cent. Because of a downward shift in real gross domestic expenditure in the final two quarters of 1988, and because of a major strengthening of the South African merchandise export performance, the second half of 1988 also saw a reinvigoration of the surpluses on the balance of payments on current account, which had seemed in danger of being wiped out earlier in the year.In contrast to these developments, the first six months of 1989 witnessed an approximate halving of the real growth rate from its 1988 levels and a first quarter rebound of domestic expenditure, mainly because of a surge in real government consumption outlays. Conflicting signals regarding the direction in which the economy is headed are likely to be emitted by cyclically sensitive time series on either side of a cyclical turning-point. Recent behaviour of the broad national accounts aggregates does not, however, contradict the view-as derived from recent movements in the comprehensive business cycle indicators as well as from more sector -specific evidence - that the upper turning-point of the 1986-1988 upswing is likely to have been reached, at least in a technical sense, towards the very end of 1988 or in the first few months of 1989.Output and spending trends in the first half of 1989 were still compatible, in general terms, with the "broad economic projection" for 1989 that underlay the monetary authorities' adoption of a target rate of growth for the M3 money supply in 1989 of 14 to 18 per cent. A key element in that projection was an envisaged current account surplus of the order of R3½ - 4 billion. This was believed to be consistent with, among other things, an envisaged further increase in real gross domestic product of some 2 per cent and an increase in the average level of real gross domestic expenditure that should not exceed 1 per cent.Realisation of the authorities' "broad economic projection" for 1989 would be tantamount to achieving a "soft landing" for the South African economy. By mid-August 1989 little uncertainty remained that domestic spending and production activity were cooling down. However, in the light of the uncompromising nature of the need for a substantial current account surplus (and in the light of certain untoward balance of payments developments - notably the sharp further drop in the dollar price of gold in the first half of 1989), doubts could still be entertained as to whether spending and output were, in fact, slowing down at an appropriate speed and to the requisite extent.Quite remarkable strength of the South African merchandise export performance in both the second half of 1988 and the first half of 1989 allowed the surplus on current account to be restored to an average annualised level of some R5,0 billion in the third and the fourth quarter of 1988, but to an annualised level of only R2,3 billion in the first two quarters of 1989. Both these sets of current account surpluses were, however, exceeded by unexpectedly heavy outflows of capital (not related to reserves) i