is being exacerbated by trade tensions between the us and various other large economies, in particular china. increased tariffs, if they persist, threaten to reduce global trade volumes and disrupt complex supply chains. the recent rise in oil prices is a further challenge, driving up inflation and weighing on the trade balance of oil - importing countries. the price of brent crude oil has doubled since early 2016, but remains well below the high of approximately us $ 154 reached 3 ilzetzki, e., reinhart, c. and rogoff, k. ( 2017 ). exchange arrangements entering the 21st century : which anchor will hold? national bureau of economic research working paper 23134. page 3 of 8 in 2008. however, when priced in the currencies of emerging markets like brazil, mexico or south africa, brent crude oil is back near its historical highs. notwithstanding these concerning developments, global growth on aggregate remains relatively strong and is expected to moderate only marginally over the medium term. this trend is also reflected in the forecasts for south africa ’ s major trading partners where, on average, gdp growth is expected to slow slightly from 3. 6 % in both 2017 and 2018 to 3. 5 % in both 2019 and 2020. south africa faces two key external risks over the coming months. the first is a possible sharp and sustained drop in capital inflows, as us interest rates increase. the second is a further substantial rise in oil prices. the two could also conceivably occur simultaneously. if so, south africa would face increased inflationary pressure and a further drag on household disposable income. domestic economic developments the domestic economy has substantially underperformed in 2018 relative to expectations formed at the beginning of the year and the longer - term trend. indeed, the technical recession recorded in the first half of the year surprised most economic analysts. at the january meeting of the monetary policy committee ( mpc ), we had forecast gdp growth of 1. 4 % for this year. by the september mpc meeting, this was revised down to 0. 7 %. the weakness in economic activity witnessed in 2018 reflects a combination of transitory factors and more persistent constraints. poor weather conditions exacerbated the fall in agricultural output from 2017 ’ s elevated level. meanwhile, ongoing policy uncertainty and weak domestic demand resulted in a lack of business investment and hiring. moving into 2019, we are anticipating an economic rebound driven largely by an export recovery and improved growth in

though a single currency implies a single exchange rate, the euro area representatives in the imf executive board do not always sing from the same hymn sheet when discussing exchange rate developments in other major countries. it is my conviction that a unified representation of the euro area countries at the imf would strengthen the exchange rate policy of the euro. exchange rate developments during the crisis let me now turn briefly to exchange rate developments since the outbreak of financial turbulence in the summer of 2007. during the last year and a half, foreign exchange markets have witnessed sharp swings in all major bilateral rates. foreign exchange volatility – both realised and implied – has reached historical levels ( see fig. 1 ). more recently, the situation seems to have improved as realised volatility eased substantially. yet the markets ’ perception of risk still remains elevated compared with longer term averages. 2 despite the extremely volatile environment, the spot foreign exchange market seems to be functioning normally. looking at the euro / dollar bilateral rate, bid - ask spreads ( expressed as percentages of the spot rate ) have remained largely unaffected by the rise in realised and analysing options ’ maturities ( see fig. 2 for the euro / dollar rate ) reveals that the increase in the perception of risk was concentrated over the shorter horizons ( one to six months ), while it remained more contained at the one - year horizon. since the beginning of 2009, shorter - term expectations of exchange rate volatility have been significantly scaled down, signalling a return to ‘ normal ’ market conditions. implied volatilities ( see fig. 3 ), and broadly in line with their averages since 2004. nonetheless, some tensions have emerged in the forward foreign exchange market. the us dollar funding needs have led to tensions in global money markets 3 and forced many institutions to convert euros into dollars through fx swaps. in addition, tensions have not remained confined to the shortest horizons, but also spread to longer maturities, as banks have realised that the financial crisis might last longer than anticipated. 4 turning to exchange rate movements, until the summer of 2008, the us dollar weakened against the euro, while the japanese yen remained broadly stable. this reflected the market perception that the turbulence originated in the united states ( see fig. 4 ). subsequently however, and especially after the lehman collapse, the euro weakened both against the us dollar and the japanese yen. the dollar benefited from increasing risk aversion worldwide as well as from temporary factors associated with a widespread shortage of dollar liquidity