Remarks by TT Mboweni, Governor of the South African Reserve Bank at the Annual Dinner in honour of the Ambassadors and High Commissioners to the Republic of South Africa, Pretoria, 7 December 2004 Your Excellency, the Dean of the Diplomatic CorpsYour Excellencies, Ambassadors and High CommissionersYour Excellency, the Chief of State ProtocolYour Excellencies, Heads of International Organisations represented in the Republic of South AfricaDeputy Governors of the South African Reserve BankSenior Management of the South African Reserve Bank and their spouses/partnersMedia representativesLadies and Gentlemen Welcome once again to this annual dinner in honour of the Ambassadors and High Commissioners accredited to the Republic of South Africa. My colleagues and I always look forward with bated breath to this evening at the end of every year. This dinner represents for us the highlight of every year as we gather with you to break bread and discuss issues of common interest and relevance to our various countries. 2004 has indeed been a momentous year for the global economy. One of the distinguishing features of this year has been the oil price. When I joined the central bank in 1998, the north sea brent crude oil price was $9 per barrel. Since then, the oil price has shot up quite considerably. The price of north sea brent crude oil is now around $38 per barrel and indications are that it might not come down to the OPEC target levels of $22 - $28 per barrel in the near future. The futures price also indicates that the oil price will stay near the $40 per barrel level. The behaviour of the oil prices has changed the global economic outlook in a real way. Estimates by the International Monetary Fund researchers is that if the oil price averages $37 per barrel in 2004, global growth will slow down by some ½ percentage point, inflation for the advanced countries will increase by about 0,3 percentage point and the trade balance of advanced countries will deteriorate by some 0,3 per cent of gross domestic product. The estimates for South Africa are that economic growth might decline by some 0,6 percentage point, inflation will increase by some 1,6 percentage point and the trade balance will worsen by some 1,4 per cent of gross domestic product. Clearly there is cause for concern all-round. At the core of these oil price developments seems to be concerns about supply constraints. These arise, in part, as a result of supply problems from Iraq, uncertainties about possible tensions between the United States and Iran, production uncertainties in Nigeria, the continuing problems experienced between the Russian government and the Yukos oil company, management and trade union tensions in Norway and the damage to production which was caused by hurricane Ivan in the Gulf of Mexico. Although some of the developments mentioned above are significant, it would, however, seem to us that the oil market players are running ahead of themselves in terms of pricing. Time and again, the largest producer of oil in the world, the Kingdom of Saudi Arabia, has made it known that there are sufficient reserves and capacity to ensure that global supply meets demand. On many occasions, the Kingdom of Saudi Arabia has actually increased supply by no less than a million barrels per day. They have indicated that there are sufficient reserves for the next 50 years. And as stability returns in any troubled oil-producing country, supply surely should be guaranteed. It is maybe time for the market to pause and reflect on the perceived supply constraints. Certainly, the global economy expects no less from the oil market. Despite these risks for the global economy now and in the recent past, substantial global economic growth has been recorded in 2003 and prospects for the whole of 2004 look promising. The global economy recorded an impressive 3,9% growth in 2003, with the United States, Japan, India, China and many emerging market economies making the most impressive contribution to global growth. Growth rates in China and India remained the envy of all countries in 2