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In May 1993 the South African economy emerged from the longest recession since the Second World War when a lower turning-point in the business cycle was reached. The economic upturn in the ensuing period was fairly strong, but the growth in real gross domestic product fluctuated considerably. Total production increased rapidly at the beginning of the economic recovery. Economic growth then faltered somewhat in the first half of 1994, largely because of uncertainties about the outcome of the political transition. In the second half of 1994 the growth in domestic product regained much of its lost momentum and strengthened at a brisk and accelerating rate when it became apparent that the new political dispensation had been established in a peaceful manner. Adverse weather conditions, the mining of lower-grade gold-bearing ore and frequent disruptions of production on gold mines then led to a slackening in economic growth in the first half of 1995.Despite these ebbs and flows in economic growth, real gross domestic product increased at an average annualised rate of 3 per cent in the eight quarters up t9 June 1995. This was a considerable improvement on the negative growth in the recession of 1989-93. Moreover, for the first time in many years real gross domestic product per capita increased in the current economic upswing. Employment, displaying its usual cyclical lag, also began to react to the recovery in 1994, but the creation of new job opportunities was too weak to arrest the rise in unemployment. A cyclical strengthening of economic growth will in any case not have a lasting effect on unemployment because it is more a structural problem.The upturn in economic activity was broadly based, but was particularly evident in the secondary and tertiary sectors. Increased production was boosted by a robust domestic demand for goods and services as well as a sturdy increase in the volume of merchandise exports. Real outlays on fixed investment and the accumulation of inventories were to a large extent responsible for the comparatively high increase in real gross domestic expenditure. The long and severe recession which preceded the current economic upswing, caused these two aggregates to increase at rates well above those registered in the other upward phases of the business cycle since the late 1970s. Capital expenditure on a few major projects contributed to the revival of fixed investment, but investment outlays became more widespread as the economic recovery gained momentum.Real private consumption expenditure rose at an appreciably slower average rate in the eight quarters ended June 1995 than in any of the preceding three economic upswings. This was probably due to the slow response of households to the improved economic conditions. In sharp contrast to previous periods of economic recovery when real private consumption expenditure per capita advanced immediately with the changed circumstances, per capita consumption only started to increase with a lag of four quarters in the current economic upswing. The slow reaction in the outlays of households on consumption was in all likelihood related to the weak growth in personal disposable income and the unwillingness of households to commit future income during a period of political transition.When these uncertainties began receding after the new government came into power, a stronger demand for consumer goods and services became evident, supported by an increased recourse to consumer credit. Household debt-as a ratio of personal disposable income accordingly rose sharply to 60 per cent in the first half of 1995; in the 1970s this ratio averaged only about 42 per cent. Like the increase in government debt, the sharp rise in household indebtedness is clearly an unsustainable development.A larger proportion of households' current income was also used to finance consumption expenditure in the economic recovery, with the result that personal saving weakened relative to aggregate production as well as personal income. This was aggravated by a sharp rise in the direct taxes paid by ho