Annual Economic Report Introduction Following the severe recessionary conditions in the year to mid-2009 when the financial crisis disrupted credit extension and paralysed trade and income flows, the past year has been a period of somewhat uncertain and uneven recovery in the global economy. Strongly stimulatory monetary and fiscal policy measures were adopted in most parts of the world in order to restore and nurture economic growth. Large fiscal deficits, however, resulted in a rapid escalation of government debt which triggered severe concerns about fiscal sustainability in a number of countries with high sovereign debt ratios and structural weaknesses. With investors fearing sovereign default, bond yields in Greece and a number of other European countries surged in the first four months of 2010. Calm was only restored in May after the European authorities and the International Monetary Fund (IMF) had announced a large support package to provide overindebted governments with breathing space while restoring fiscal discipline and implementing structural reforms. At the Group of Twenty (G-20) Toronto summit held in June 2010, governments also committed themselves to a programme of reducing large fiscal deficits in a measured way over the medium term. However, some concerns continued to linger regarding the ability of governments to effectively implement austerity measures. During the past year nominal interest rates remained very low in most of the developed economies, in many cases supplemented by the use of quantitative easing measures to expand liquidity. While central bank balance sheets expanded strongly in this process, private-banking-sector balance sheets were less responsive, as credit extension in these mature economies remained weak. Throughout the financial crisis, the associated recession and the subsequent recovery, economic growth in emerging-market and developing economies was more robust than in developed economies, with China and India in particular maintaining strong momentum. This provided some traction to help sustain the underlying global economic recovery, which appeared to be losing some momentum as the year progressed due to fragility in a number of economies. While global consumer price inflation remained low, international commodity prices were bolstered by the economic recovery and strong demand from China. This provided support to economic activity in commodity-exporting countries, among others in Africa. Recent projections put the real growth rate of the African continent for 2010 at more than 5 per cent.  Broadly mirroring developments in global economic activity, the real gross domestic product of South Africa contracted from the final quarter of 2008 to the second quarter of 2009, resuming positive growth thereafter. Activity picked up and registered a brisk rate of growth in the first quarter of 2010, before decelerating somewhat in the second quarter. The resumption of positive growth was spearheaded by the tradeables sectors, particularly manufacturing, which had previously also contracted severely during the global recession. Growth in the services sectors also gained momentum in the first half of 2010. Among the expenditure components, real government consumption expenditure rose briskly over the past year. Real final consumption expenditure by households contracted throughout the first three quarters of 2009 but recovered thereafter, facilitated by lower interest rates, above-inflation salary increases and improvements in confidence. The recent increases were concentrated in expenditure on durable and semi-durable goods, with purchases of television sets, among other things, bolstered as the 2010 FIFA World Cup™ tournament approached. Real fixed capital formation by the private sector contracted over the past year, reflecting the large output gap in the economy. By contrast, real capital expenditure by the public sector increased as the expansion of infrastructure continued, partly in final preparation for the football tournament. Real inventories were reduced further during the pas