Address by Dr Chris Stals, Governor of the South African Reserve Bank, at the annual presentation to the media arranged by the South African Communication Service, Cape Town. A. ECONOMIC DEVELOPMENTS IN 19951. Real economic activity Real gross domestic productAlthough national accounts statistics are not yet available for the fourth quarter of 1995, indications are that the South African economy performed reasonably well last year. During each of the first three quarters of the year, the seasonally adjusted annualised rate of growth in real gross domestic product amounted to 1½, 2 and 3 per cent respectively. Projections indicate a growth rate of between 3 and 3½ per cent for the year, which will be the highest rate of economic growth established since 1988. This reasonable performance was achieved despite the adverse climatic conditions which led to a marked decline in agricultural output, and a lower production of gold. Excluding the primary sector, that is mining and agriculture, the rest of the economy expanded at a rate of over 5 per cent last year, particularly due to strong expansion in manufacturing production. Over the first nine months of the year, total output in manufacturing was about 8½ per cent above the level of the first nine months of 1994, although signs appeared of a slowdown in the fourth quarter. Capacity utilisation in the manufacturing sector rose from about 78 per cent two years ago to about 85 per cent in the third quarter of 1995. Strains are therefore developing in the ability of the manufacturing sector to maintain high growth, although large capital investment in this sector over the last two years is now beginning to add to total capacity. Real gross domestic expenditureAs in 1994, real gross domestic expenditure in 1995 continued to increase at a faster rate than aggregate production. Over the first three quarters of the year, real gross domestic expenditure increased at seasonally adjusted annualised rates of 1½, 6½ and 2½ per cent, to remain at a level of about 5 per cent above total demand in 1994. Gross domestic fixed investment continued to increase at the relatively high rate of about 8 per cent established in 1994, whereas private consumption expenditure accelerated to an even higher growth rate than the 3 per cent of the previous year. There was also a substantial further accumulation of inventories in 1995. It should also be noted that consumption expenditure of general government made but only a small contribution to the high rate of increase in aggregate demand, although there were signs of some acceleration also in this component of total expenditure. Indications are that there occurred a slight slowdown in the rate of increase in gross domestic expenditure in the fourth quarter, but the level of expansion nevertheless remained above the growth rate in domestic production. Employment and wagesOfficial statistics for employment are only available up to the first quarter of 1995. There were encouraging signs of an increase in total employment in the second half of 1994, but a small decline in total employment occurred again in the first quarter of 1995, when total employment in the public sector declined sharply. In the private sector, more people were employed in manufacturing, electricity generation, wholesale and retail business, transport and finance. The aggregate rate of increase nevertheless remained between 1 and 1½ per cent per annum, which is well below the estimated rate of increase in the total labour force. The rate of increase in the nominal wages and salaries paid per worker slowed down from 14,5 per cent in the second quarter of 1994 to 10,8 per cent in the first quarter of 1995, which led to an important slowdown in the rate of increase in real per capita wages and salaries. Indeed, in the first quarter of 1995, an increase of only 1,7 per cent in real wages and salaries was matched by a rise of 2 per cent in labour productivity, with the result that the real unit labour cost of production showed a small decline. If this trend could have been maintained throughou