Keynote address by Dr Monde Mnyande, Chief Economist and Adviser to the Governor, at the 6th Annual Risk and Return South Africa Conference, Cape Town, 1 and 2 March 2012  Good morning ladies and gentlemen. I find myself in a somewhat difficult position this morning, not because I don’t have an insight into the macroeconomic outlook in the wake of the global crisis. “I can fairly see what 2012 holds, but I haven’t got the heart to tell you”. Nonetheless, allow me to first thank you for the opportunity to deliver this keynote address and, in the process, share some thoughts on the economy with you in these challenging times. It is a privilege and an honour indeed.  It has been three years since the global economy entered into an expansionary phase, yet many of the economies are still in a gloomy state. The global economy entered 2011 on a solid note and seemed to be on the right recovery track until the third quarter of 2011. The end of 2011 was largely characterised by uncertainty and mixed recovery signals from various regions. The Middle East and North African region is currently challenged by the political tensions which threaten another spike in the oil price. The periphery countries of the euro area are facing possible recession, with unemployment rates at very worrying levels. More generally, adjustment mechanisms within the euro area are not yet working, due to lack of consensus on the appropriate sovereign debt crisis remedy by government agencies. By contrast, the United States (US) economy has improved somewhat in recent months, and growth in the emerging world remains quite solid. With regard to the global policy stance, monetary policy across the mature world remains unprecedentedly easy, with limited success in stimulating aggregate demand, and public debt in mature economies continues to rise at an untenable rate. The big question now facing most central banks, public authorities and investors is whether the world economy is just transiting a minor pothole or is stuck in a deep hole that might lead to another economic recession. I guess I’m beginning to have a brave heart as I go along. So, I find this topic extremely appropriate, given that the notion of risks and return is a preoccupation of policy-makers and the investment community. Admittedly, the concept of balanced risk and return, amid the current economic environment, is achallenge for all. Assessment of sovereign debt crisisOverwhelming evidence seems to suggest that the global economy is still peddling in a dangerous zone and at times seems to be approaching a new precipice with mounting downside risks. The world awaits comprehensive and long-lasting credible policies and actions, mostly from Europeans, to restore global market confidence and to moderate downside risks. The realisation of these policies will not only bring about the desired sustainable global economic growth but also socially responsible structural reforms. In assessing the debt crisis briefly, European countries face a possible collapse of confidence as the financial markets continue to signal scepticism regarding the expected outcomes of current policy actions, while the effects of the crisis are also spreading to emerging-market economies. The spillover of the sovereign debt crisis beyond the periphery of Europe has come at a huge cost to the world economy. Against this backdrop, investors showed heightened risk aversion in October and November 2011. The bond markets of countries such as Italy, France, and even Germany have come under pressure as eurozone governments struggle to convince financial markets that indebted governments will not default and will be able to borrow at affordable rates to repay debts as they become due.  This uncertainty was reflected in the increase in the European government bond yields in October and November 2011. The US government bond yields were also negatively affected over the period but certainly viewed as less risky. The yields showed some volatility and oscillated upwards from mid-January 2012 to February as the International Monetary Fund