By Mr T.T. Mboweni, Governor of the South African Reserve Bank, at a luncheon of the South African-German Chamber of Commerce and Industry, Johannesburg.1.    INTRODUCTIONWorld economic activity expanded at a rapid pace during 1999 and the first nine months of 2000. Forecasts for the growth in global production by the major multilateral institutions for the year 2000 generally vary from 3½ to 4½ per cent. Moreover, the strengthening in world economic activity was fairly broadly based, except for Japan which had negative growth in 1999. However, from the beginning of 2000, Japanese economic growth started to pick up together with a rise in corporate profits and fixed investment in the private sector.Nearly every other region of the world has seen an improvement in economic performance during the past year. Many of the world's poorest countries, including some in Africa, are recording respectable growth rates. Growth in Europe has picked up remarkably and the United States is enjoyingthe longest expansion it has ever recorded. The remarkable economic boomin the United States has undoubtedly made an important contribution to the strength of the recovery in the world. But so too have the achievement and maintenance of price stability around the world. Despite a substantial rise in oil prices and strong international demand, inflation in nearly all the industrial countries has remained subdued since the beginning of 1999. 2.    SLOW ECONOMIC GROWTH IN SOUTH AFRICAIn this buoyant economic environment it is rather surprising that the South African economy did not perform better. The high international economic growth was expected to assist growth in the South African economy through increased demand for exports, higher prices on commodity markets and increased investments. After showing clear signs of a vigorous economic recovery during 1999, the economic growth in South Africa slowed down in the first half of 2000. The annualised quarter-to-quarter growth in the seasonally adjusted real gross domestic product at first accelerated from ½ per cent in the fourth quarter of 1998 to 3½ per cent in the fourth quarter of 1999. Contrary to general expectations, it then declined to 1 per cent in the first quarter of 2000 and 1½ per cent in the second quarter. The low economic growth during the first half of 2000 was largely due to a decrease in agricultural output that amounted to 7 per cent after adjustment for seasonal factors and annualised. Torrential rain and flooding affected agricultural production in the northern and eastern parts of the country, and high temperatures and veld fires in the south-western wine and deciduous fruit producing areas caused extensive damage to crops. On top of this, farmers could not harvest the maize crop in the second quarter of 2000 because of the generally wet conditions. Maize output was therefore shifted to the third quarter of 2000 and should be an important plus factor for higher growth in the second half of the year. Economic growth in South Africa during the first half of 2000 was also negatively affected by an over-supply of coal on international markets, so there was less demand for one of South Africa's important export commodities. Gold output continued to fall, contributing to a further decline in the value added by the mining sector. In addition, manufacturing output was affected by negative business sentiment related to the depreciation of the rand, volatile conditions in financial markets and socio-political developments in some sub-Saharan African countries. Many of these negative factors now seem to have improved, calmed down or disappeared completely. The outlook for economic growth is accordingly much more favourable. Higher growth rates could probably be expected during the second half of 2000 and in 2001. Prospects for long-term production growth, however, are still somewhat bleak in view of the current low fixed investment ratio. Fixed capital formation of about 15 per cent of gross domestic product is not enough to sustain a high rate of output growth and job creation. High s