, it should be noted that the recent monthly data for the fourth quarter suggest that there may be a downside risk to these forecasts. it is clear that the deceleration in the south african economy has underlying structural causes. the economy ’ s estimated potential growth rate has been revised downwards to approximately 1, 4 per cent. restoring growth rates to historical averages will require structural reforms, without which the economy is expected to expand at rates of between 1, 0 and 2, 0 per cent for the foreseeable future, generating little or no improvement in either employment or individual living standards – particularly when considered in the context of the 1, 5 per cent annual population growth over the past decade. what is required is an increased focus on reforms in product and labour markets, an environment more conducive to increasing investment levels ( particularly in the private sector ), and better - quality education outcomes which are more consistent with the future needs of the economy. ensuring better delivery by state - owned enterprises is also critical given the important role that these entities play in providing the infrastructure to support growth in the economy. it is well known that south africa has endured an environment of high inflation and low growth, a situation presenting a challenge to monetary policy authorities. the main priority for the south african reserve bank is price stability in the interest of balanced and sustainable growth. faced with this situation, the monetary policy committee ( mpc ) has increased the repurchase rate gradually since january 2014, by a total of 200 basis points, to the current level of 7, 0 per cent. this hiking cycle was more gradual when compared to previous hiking cycles, responding to a more uncertain and volatile policy environment which, given the weakening growth outcomes, at times required the mpc to pause and carefully evaluate incoming data to inform future monetary policy moves. during 2016, there was some upward pressure on consumer prices as these generally remained above the upper end of the 3 - 6 per cent inflation target range throughout the year. these upward pressures emanated from food price inflation, which increased by close to 12, 0 per cent in the final quarter of 2016, the highest increase since 2009 when prices increased in excess of 15 per cent. the upward pressure on food inflation was mainly as a result of the severe drought experienced. the exchange rate of the rand also recorded substantial depreciations at times, such as that which occurred in december 2015 and january 2016, exacerbating the inflation outlook. underlying inflation, as measured by core

##lnerabilities have declined. 5. a domestic economy that is expected to recover in 2017 the domestic economy recovered from negative growth in 2009 to grow at 3, 0 per cent in 2010 but slowed to 1, 3 per cent in 2015. the challenges mounted such that, at the beginning of 2016, the south african reserve bank projected growth of 1, 5 per cent for 2016. some months later, the forecast was lowered to no growth at all. this more pessimistic outlook came on the back of continued disappointing growth outcomes as a result of a severe drought affecting the agricultural and manufacturing sectors, negative growth in the mining sector and a weaker - than - expected global backdrop, combined with political developments affecting business and consumer confidence. subsequently, however, growth forecasts were revised higher to 0, 4 per cent as the second quarter of 2016 delivered a positive growth surprise. this acceleration in growth was short - lived, however, as the third quarter witnessed a slowdown to 0, 2 per cent. the primary sector, which had experienced sustained contractions since the second quarter of 2015, saw a real production increase in the second and third quarters of 2016, although this recovery lost momentum in the third quarter. agricultural production logged seven consecutive quarters of contraction as it continues to recover from a historically severe drought. the manufacturing sector has been very volatile, contracting by 3, 2 per cent in the third quarter after growing by 8, 1 per cent in the second quarter. the contraction was broad - based as this sector has been hampered by weak global and domestic demand, rising input costs and low business confidence. the construction sector is also under stress, while both retail trade sales and domestic new vehicle sales have continued their negative trend. the employment outlook remains bleak – not surprising given the poor economic situation. the official unemployment rate stood at 26, 5 per cent in the fourth quarter of 2016 – down from 27, 3 per cent in the third quarter but still about 2 percentage points higher than a year ago. recent data suggest some downside risks to the 2016 economic growth forecast, such as a continued decline in business and consumer confidence as well as the contraction in mining output during both october and november. and while the barclays purchasing managers ’ index increased to just above 50 in january 2017, it had been in negative territory for five consecutive months. looking ahead, the most recent growth forecasts of the south african reserve bank suggest growth of 1, 1 per cent in 2017 and 1, 6 per cent in 2018. however