Our website has detected that you are using an outdated browser that will prevent you
from accessing
certain features. An upgrade is recommended to improve you browsing experience.
The long recession that the South African economy had experienced from March 1989 came to an end around the middle of 1993, and the economy recovered in the second half of that year. The strengthening of economic activity was reflected in a higher growth rate in gross domestic product and was confirmed by the behaviour of composite economic indicators, such as the leading and coincident business cycle indices. The recovery of economic activity was fostered by favourable weather conditions, which led to a sharp increase in agricultural output, and higher growth in some industrial countries which boosted South Africa's volume of exports. Other factors beneficial to the higher growth included the removal of trade and financial sanctions against the country and the progress made in combating inflation and restoring financial stability.In the first half of 1994 the upturn in economic activity wavered somewhat as the growth in agricultural output levelled off temporarily and output was affected by exceptional circumstances linked to the processes of political change. Uncertainty about the future political dispensation of the country had an adverse impact on most economic sectors. Labour unrest and work stoppages in the pre-election period and a reduction in work-days arising from the large number of public holidays, brought about lower growth and even declines in the real value added, particularly in manufacturing, gold mining, and the retail and motor trade.An array of structural weaknesses also continue to impose constraints on the longer-term growth potential of the economy. The more important among these are: the shortage of skilled manpower; the high costs of labour in comparison to skills and training; high nonwage labour costs in the form of labour unrest, work stoppages, strikes and stay-aways; the persistence of uncomfortably high inflation expectations, despite the success achieved in creating more stable financial conditions; the large and increasing involvement of government in the economy; the high tax burden on individuals; the unsustainable size of the government deficit before borrowing; the low level of domestic saving, and high dissaving by government; uncompetitive conditions leading to inefficiencies; and an anti-export bias in the foreign trade policy structure.In the short term little scope also existed for any policy change in 1993 and the first half of 1994 to stimulate the economy by encouraging domestic demand. Although the long recession has brought about an increase in average unutilised production capacity, many of the major manufacturing sub-sectors are moving quickly towards or are already close to full production capacity. The prolonged period of low investment has also caused an increase in the average age of the South African capital stock. The recent economic recovery consequently had an immediate effect on both real fixed investment and import volumes. In fact, investment in machinery and equipment began to increase even before the revival in economic activity.The resumption of economic growth also influenced real private consumption expenditure. As a result of the redistribution of income to households with a high propensity to consume, the real outlays on essential goods and services reacted without delay to a rise in personal disposable income. The demand for durable goods also picked up later, causing an increase in consumer credit and a lower growth in households' saving. From the second half of 1993 government consumption expenditure started to increase rapidly; dissaving by the government accordingly remained high. Even though corporate saving was high, the domestic savings ratio receded sharply further in 1993 and the first half of 1994.The growing demand for investment and consumer goods caused businesses to build up their inventories, which also contributed to the sharp increase in the value and volume of imports. At the same time higher payments on freight and merchandise insurance, tourist expenditure and interest payments on foreign loans resulted in a significant increase in ne