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The relatively strong recovery in general economic activity from the second quarter of 1993 seemed to have lost much of its vigour from the second half of 1995. Although it is still too early to claim that the recovery has run its course and that the economy has entered, or is about to enter, a downward phase of the business cycle, there is sufficient evidence available to support the view that the recovery has lost some of its earlier momentum. This is confirmed by the downward trend in the coincident composite index of business cycle indicators from June 1995 and the slight downward, though fluctuating, movement in the leading indicator of business activity from the beginning of 1995.The quarter-to-quarter growth in the real value added by the non-primary sectors of the economy also reached a peak in the second quarter of 1995 and began to subside progressively over the ensuing four quarters. It nevertheless still seems as if aggregate output growth exceeded its trend rate by some 0,5 percentage points in 1995. Growth at a rate persistently higher than the trend rate will usually exert pressure on productive resources and often warrants some pause in the acceleration in economic growth to make new room for sustained noninflationary increases in overall real output.economy is slowing down. These include: - the sharp decrease in the utilisation of production capacity in the manufacturing sector since the third quarter of 1995; - the tight financial situation of private households and their heavy indebtedness, which allow very little scope for continued growth in real private consumption expenditure; - the smaller additions to inventories from the second half of 1995;-the uncertainty and sharp fluctuations in financial markets and the high growth of the money supply and bank credit extension to the private sector, which led to persistent inflationary pressures and prevented any relaxation of conservative macroeconomic policies;-the increases in production losses because of confrontational industrial relations from the beginning of 1996; and-the weakening of capital inflows from abroad after the middle of February 1996, which could have strengthened the expansion of production in a country in which the domestic savings ratio has declined persistently from the early 1980s to the current very low levels.The growth in economic activity and production is, however, still supported by sharp increases in agricultural production owing to favourable weather conditions experienced during the past summer. Output growth in the agricultural sector could prop up general economic activity in the last half of 1996 because the bulk of the summer crop will be harvested during this period and good winter crops are expected. A strong export demand for base minerals and coal and further increases in productivity could help to achieve steady growth in the output of the non-goldmining industry.Capital productivity has increased in the current economic upturn, as is clearly reflected by a decline in the capital-output ratio. At the same time, real gross domestic fixed investment increased at an average annualised quarter-to-quarter rate of8~per cent. This is a much higher increase than during any other economic recovery since the beginning of the 1980s. Moreover, the strongest growth in real fixed investment took place in the private sector over a broad front of activities in the form of new investment in machinery and equipment, i.e. in capital assets used directly in the production process. A large number of new ventures were also started in manufacturing, mining, commerce, accommodation and financial services, which should enhance the export potential of the economy.South Africa's successful transition to a new political order, reintegration in the international capital markets and favourable credit ratings improved its overall balance of payments position and made the gradual liberalisation of exchange control possible. After having been forced to maintain a surplus on the current account of the balance of payments from the middle of the 1980