real sector of the economy, the impact of the crisis has been reflected in the scaling down of production or the closing down of some mining operations due to low copper prices. this has had the inevitable consequence of loss of jobs. however, following the reopening of some mines, the situation has slightly improved. external position the declining earnings from copper exports adversely affected zambia ’ s balance of payments position. for instance, during the fourth quarter of 2008, the overall balance of payments deficit widened to us $ 177. 6 million from us $ 120. 6 million recorded the previous quarter. merchandise export earnings declined to us $ 909. 8 million from us $ 1, 206. 7 million realised in the third quarter of 2008 following a sharp reduction in metal export earnings. metal export earnings declined by 23. 1 % to us $ 711. 7 million in the fourth quarter of 2008 from us $ 925. 6 million the previous quarter. metal export earnings at us $ 575. 8 million in the first quarter of 2009 were 49. 8 % lower than the us $ 1, 147. 2 million recorded in the similar period last year. a slide in both copper and cobalt export earnings owing to lower prices accounted for this outturn. nonetheless, it should be noted that commodity prices on the international markets recently have been edging upwards. if this trend is sustained, zambia ’ s external position may improve accordingly. foreign capital inflow your excellencies, the global financial crisis has led to the decline in the foreign portfolio investment inflows as investors reduced their exposure to emerging market instruments. the risk aversion towards emerging markets has led to a reduction in foreign portfolio inflows and holdings in zambia ’ s government securities. this has resulted in a net outflow of foreign portfolio investment since funds that mature are not being rolled over and funds coming in have be en scaled down. for example, the foreign investor ’ s total holding of government securities has reduced from k1, 054. 7 billion in the third quarter of 2008 to k446. 2 billion by the second quarter of 2009. similarly, the flow of foreign investments at the lusaka stock exchange has switched from a net inflow of us $ 2. 5 million during the period january to may 2008 to a net outflow of us $ 8. 5 million in the same period this year. exchange rate volatility and domestic inflation the global financial meltdown has caused a contagion effect to our foreign exchange

rate to fall to between 6 and 6 - 1 / 4 percent in the fourth quarter of this year and to decline to between 5 - 1 / 2 and 6 percent in the fourth quarter of 2004. again, these values are broadly consistent with the more recent private - sector forecasts. in particular, the private - sector forecasters and fomc members evidently agree that strong gdp growth will only gradually erode the accumulated slack in the job market. simple arithmetic tells us that all the forecasters are expecting much of the projected increase in output to be met by ongoing increases in labor productivity, rather than by substantial new hiring. this point is a crucial one, to which i will return later when discussing inflation projections. i should tip my hand at this point and say that i personally find the real growth and unemployment forecasts just described to be broadly reasonable, though there are important risks. in particular, i have been of the view for quite a while that acceleration of growth to 4 percent or better in 2004 is plausible ; and i agree also that the decline in the unemployment rate, though steady, is likely to be slow. why do i believe that there are grounds for optimism about economic growth, even as more caution is warranted regarding unemployment? the consumer plays a central role as always, and recent news on retail sales ( including automobile sales ) and housing starts and sales, among other data, suggests that household spending continues to hold up well, as it has throughout the past three years. tax cuts, signs of stabilization in the job market, and rising stock prices are among the factors that should keep the consumer in the game as the recovery proceeds. what makes the situation today feel particularly encouraging, however, is that we may finally be seeing some signs of a revival in business investment. because i see the strength and sustainability of that revival as the key to the forecast, i would like to discuss it in a bit more detail. in a speech i gave to the forecasters'club last april ( bernanke, 2003a ), entitled “ will business investment bounce back?, ” i pointed out that the recession that began in march 2001 is distinctive in being one of the few business - led - as opposed to household - led - recessions of the post - world war ii period. in particular, a sharp decline in business investment spending that began in the second half of 2000 was the proximate cause of the recession. by the same token, i argued in my earlier speech making a