Annual Economic Report Introduction  The pace of growth in global output reached a peak of 5¼ per cent in 2004 and maintained exceptionally robust momentum in the subsequent eighteen months, with real growth remaining marginally below 5 per cent. Although the prices of crude oil and other commodities soared, consumer price inflation increased only marginally in most parts of the world. In order to contain inflation under these circumstances – and recognising the considerable degree of accommodation which had previously characterised monetary policy in a number of the major economies – central banks generally raised their policy interest rates during the past eighteen months. Economic activity in Africa benefited from the strength of the world economy, the buoyancy of commodity prices and the strengthening of economic policy frameworks. The continent maintained a real growth rate of around 5 per cent in both 2004 and 2005. There are indications that the robust expansion continued in the first half of 2006, making this the strongest and most consistent growth performance in the recent history of the continent. As may be expected, oil-exporting countries outpaced the rest. South Africa recorded a real growth rate of almost 5 per cent in 2005 – the strongest since 1984. However, whereas the growth spurt in 1984 was short lived, being straddled by years of economic contraction, the economic expansion in 2005 formed part of a sustained and robust upswing which to date has been the longest in the South African business cycle history. Real growth decelerated somewhat in the second half of 2005 on account of disappointing performances of the mining and manufacturing sectors, but regained momentum in the first half of 2006 as manufacturing activity recovered. The construction and tertiary sectors recorded robust growth throughout this period. The South African economy became less dependent on commodities over the past quarter of a century as the services sector expanded in importance. Nevertheless, the recent buoyancy of commodity prices supported income, bolstered share prices and raised business and consumer confidence. The favourable commodity prices were mainly reflected in brisk increases in the nominal value added by the mining sector. The overall volume of mining output remained subdued over the past year-and-a-half, with a continuation of the downward trend in gold production but also with an expansion of output volumes in areas such as platinum mining. Growth in real domestic expenditure outpaced that in real domestic production over the past eighteen months, continuing the trend which began in 2001. All the components of domestic final demand recorded vigorous increases over the past year-and-a-half. Real disposable income of the household sector maintained a robust rate of increase, buoyed by rising employment and wage levels, higher transfers from government to households in support of the poor, and some tax relief to individuals. Together with the lower levels of interest rates and attractive prices brought about by a relatively strong exchange value of the rand, this contributed to briskly rising real final consumption expenditure by households, especially on durable and semi-durable goods. Real final consumption expenditure by general government also rose as the delivery of various services was stepped up, with the procurement of high-value military items occasionally adding a fillip to government spending. A gratifying trend over the past eighteen months was that growth in real fixed capital formation generally outpaced the other final expenditure components. This strong growth was widely dispersed, with both the public corporations and private business enterprises raising their capital expenditure across a range of sectors and activities, from electricity and communication to manufacturing and construction. The strong growth in expenditure was accompanied by rising debt levels. Household debt relative to disposable income reached a new record high in each successive quarter from mid-2005, with debt mainly incurre