will push up inflation, drive up interest rates, reduce investment and growth, and ultimately destroy jobs. the worst outcome is to be in the middle, between the two options. yet our current arrangements lie precisely there, with industry or sectoral bargaining, implying that the actors ( meaning unions and business associations ) are big enough to inflict costs on the economy but not big enough to experience those costs themselves. newer and smaller firms tend to have productivity levels that cannot be easily accommodated in such sectoral agreements, resulting in less job creation than we would like to have. 7 this cost in jobs has been estimated at somewhere between 8 and 13 per cent of total employment, in large part because sectoral agreements hurt small, labour - intensive firms. 8 south africa has surprisingly few of these firms, relative to its peers. this helps to explain our unusually high levels of unemployment. the implementation of the 3 – 6 per cent inflation target range the last factor influencing our current position of being outside the inflation target range that i would like to discuss today is how we ’ ve gone about implementing the 3 – 6 per cent target range. the original plan for the inflation target range, drafted in 1999, was to start with 3 – 6 per cent and then to narrow the range to 3 – 5 per cent. 9 from there we would have had a pretty obvious midpoint, 4 per cent, on which to anchor inflation expectations. 10 unfortunately, the planned switch to the 3 – 5 per cent inflation target range was put off when the rand depreciated in 2001 and never reinstated. south africa was left with a wide target range. in hindsight, this might have been useful. after all, it is not possible or even always desirable to steer inflation at one exact speed all the time. for instance, the standard practice with a temporary shock – such as a collapse in oil prices – is to look through the initial change in inflation and only respond if the effect is expected to be permanent. a wide target range means that these inevitable fluctuations can usually be contained within the range : see lars calmfors and john driffill, ‘ bargaining structure, corporatism, and macroeconomic performance ’, economic policy, no. 88, 1988. bargaining council agreements typically disallow exemptions for ‘ economic reasons ’. these presumably include low productivity and unaffordability. see jeremy r. magruder, ‘ high unemployment yet few small firms : the role of centralised bargaining in south africa ’

economic slack, as well as perceptions that potential us gdp4 may have slowed over time, led the fomc to lower its medium - term projection for the equilibrium federal funds rate, even as monetary accommodation was being withdrawn. 5 at the same time, expectations for a quick and sizable fiscal stimulus in the us, which could have been a justification for a faster pace of monetary tightening, gradually faded throughout 2017. the economic recovery in the eurozone continued to display stronger momentum than had been expected at the start of the year. consensus forecasts for gdp growth federal open market committee gross domestic product as of the december 2016 fomc meeting, its median projection for the medium - term federal funds rate was 3. 0 % ; it declined to 2. 75 % by the september 2017 meeting. page 4 of 12 in 2017 and 2018, which stood at 1. 3 % and 1. 6 % respectively at the beginning of the year, have since been revised upwards by 0. 9 and 0. 2 percentage points respectively. but the so - called „ populist risk [UNK] has not disappeared. while the antimainstream candidates did not cause major upsets in elections in france or the netherlands, the results still generally confirmed that a significant portion of the electorate chose candidates who were openly critical of globalisation and of the policy consensus that has prevailed over the past few decades. nonetheless, this political background did not prevent a further rise in business and consumer confidence in the region. if anything, the current confidence readings in the eurozone stand well above the average of the past decade and their increase has been broadbased across countries. the chinese economy also performed somewhat better this year than most analysts had anticipated. while a degree of policy tightening, mostly through stricter regulation, did weigh on certain components of domestic demand, chinese exports benefitted from an improved global and regional trade environment. at the same time, the authorities [UNK] tighter regulatory stance appears to have succeeded in curbing specific components of private - sector financing ( specifically the funding of and by shadow - banking institutions ) while keeping bank loan growth relatively stable and thus avoiding a broad - based credit slowdown. finally, pressure on china [UNK] s capital account has continued to moderate, allowing official foreign - exchange reserves to edge up again after the losses of the previous years. with respect to the oil market, opec members appear to have largely complied with their late - 2016 deal to limit output, although that agreement has not been the „ game changer [UNK] that