Keynote Address by Mr T. T. Mboweni, Governor of the South African Reserve Bank, at the Founding Congress of the Executive Management Institute of Southern Africa, Johannesburg 1. INTRODUCTION Ladies and Gentlemen. I am honoured to address the Founding Congress of the Executive Management Institute of Southern Africa and I thank you for the opportunity. I will first discuss international economic developments, before turning to the domestic economy. There have recently been encouraging signs that the global slowdown has bottomed out. The IMF also confirmed in the April World Economic Outlook that a global recovery is under way. Business and consumer confidence have strengthened, leading indicators have turned up, industrial production is levelling off, and commodity prices have begun to pick up. The United States is leading the upturn, but there are also signs of recovery in Europe and some countries in Asia. The recent global slowdown has drawn attention to the synchronisation of business cycles in nearly all regions. According to the Fund, the downturn has been the most synchronised in two decades. The IMF ascribes this synchronicity to common shocks such as the higher oil prices, the bursting of the information technology bubble and the tightening of monetary policies from mid-1999 to end-2000. Increased financial and corporate international linkages have also played a role. This, however, raises the question of whether the recoveries in different regions will be as synchronised as the downturn. The IMF forecasts projected global growth of 2,8 per cent in 2002, somewhat higher than expected in December 2001. The WTO projects that global merchandise trade will increase by 1 per cent this year following a 4 per cent decline in 2001. However, growth in the United States – and countries with close economic links to the United States – has been revised significantly upward, as the pace of recovery has exceeded expectations. The full impact of the pickup will only be felt in 2003 when global growth is expected to rise to 4,0 per cent. The Organisation for Economic Co-operation and Development (OECD) also recently projected that economic growth among its member states would be significantly higher this year than in 2001. OECD GDP growth is expected to accelerate gradually from 1,0 per cent in 2001 to 1,8 per cent and 3,0 per cent in 2002 and 2003 respectively. 2.  OIL PRICES After surging to $32 per barrel at the end of 2000, crude oil prices weakened in 2001 with the slowdown in the world economy. The price of Brent crude reached a six-month high of $27 per barrel in early April 2002 as a result of the tension in the Middle East, the economic recovery in the United States, Iraq’s 30-day sales embargo and a disruption in oil supplies caused by a strike at Venezuela’s state oil company. However, with Saudi Arabia pledging to replace Iraqi exports and the ousting of the Venezuelan president fuelling expectations of a less stringent oil policy, the price dropped to $23 per barrel in the middle of April. With the return of President Chavez to power the oil price once again increased to levels above $27 per barrel. Crude oil prices, however, recently fell more than 1 per cent after Israeli forces pulled out of the Palestinian leader’s headquarters, easing concern that the conflict may escalate and disrupt Middle East oil flows. 3. PROSPECTS FOR THE US Among the industrialised countries, the upturn is expected to be the strongest in the United States. This upswing is driven by a sharp turnaround in the inventory cycle, as well as substantial reductions in interest rates and tax cuts over the past year. In the first quarter of 2002 the United States economy grew at a seasonally adjusted and annualised rate of 5,8 per cent, following an increase of 1,7 per cent in the previous quarter and a contraction of 1,3 per cent in the third quarter of 2001. This is the strongest pace in more than two years underpinned by increases in consumer spending and the yearlong trend of sharp cutbacks in business inventories is showing signs of taperin