Address by Gill Marcus, Governor of the South African Reserve Bank, to the Wesgro Investor Lunch, Cape Town, 19 October 2010  IntroductionThe global crisis which erupted in 2008 is unfortunately still with us. Whereas it was relatively easy to get unanimity between countries with respect to coordinated responses to the severity of the crisis, it is proving to be far more difficult to achieve this common purpose during the current recovery phase. The recovery has been very mixed across countries and regions. The emerging markets in general, particularly those in Asia and Latin America, appear to be recovering strongly. By contrast, the US, the UK, the euro area (excluding Germany) and Japan are struggling to get growth going on a sustained basis. These countries’ attempts to reinvigorate their growth are having implications for emerging markets, leading to what the Brazilian Minister of Finance has recently described as a currency war. Although South Africa did not have a banking crisis, we nevertheless experienced the pain of recession along with most other countries. Similarly, we have not been able to avoid the fall-out of the current phase of the crisis: the recent global developments have had a profound affect on the domestic economy through their impact on trade, capital flows and consequently the exchange rate.The economy has emerged from recession, but it is a fragile recovery.  Unfortunately our growth rates are not in line with those of many of the emerging market economies, but are more in line with those of the advanced economies. We need to face up to the challenges, not all of which are external. We face a number of domestic challenges, requiring a concerted and coordinated effort.In my talk today I shall address the challenges posed to the economy by these international developments and the impact on monetary policy. By way of conclusion I will offer some thoughts as to the type of structural or microeconomic reforms that are required to improve South Africa’s growth and competitiveness. Many of the problems of this economy are deep-rooted and require coherent structural reforms, and are not easily solved.Recent global developmentsDuring 2009 the global economy began to emerge from the worst financial crisis since the Great Depression, and by the beginning of 2010 there was wide-spread optimism in the markets that the extraordinary steps that were taken by monetary and fiscal authorities to overcome the crisis would be reversed relatively soon. The focus at the time was about the appropriate pace and timing of these exit strategies. This optimistic view envisaged US policy rates being increased by the middle of 2010. There were, however, more pessimistic views which believed (and some still believe) that the risk of a double-dip recession was high. The current emerging consensus appears to be that while the risks of a return to negative growth are not trivial, the most likely outcome is for a protracted period of low growth in the advanced economies while the emerging markets are seen as the new growth engine. In essence, we have emerged from the recession, but not from the crisis. The reasons for the poor growth outlook vary across countries and regions. In the United States, the consumer is still deleveraging in the face of a housing market that has not fully corrected, and a withdrawal of the fiscal stimulus. In the euro area, the replacement of private credit and expenditure with state credit and expenditure resulted in a ballooning of fiscal deficits and debt ratios in a number of countries where debt to GDP ratios were already under pressure, particularly in southern Europe. Greece and Italy, for example, have debt to GDP ratios of 130 per cent and 118 per cent respectively. Pressure from the markets as well as the conditionalities related to the IMF-led bail-out packages resulted in the implementation of austerity measures in a number of countries, and fiscal retrenchment became the order of the day at a much faster pace than was originally thought appropriate.Fiscal adjustment in Greece is planned t