income compared to that of western europe. the seven countries considered here as south eastern europe have a combined population of around 53 million people, while the combined gdp in 2003, at nominal exchange rates, amounted to around 120 billion euro. this gives an average gdp per capita of around 2, 300 euro. even when one adjusts for purchasing power standards, income per capita across the region stood in 2003 at only 26 % of the eu average ( compared to the equivalent figure for the new member states of around 48 % of the eu average ). another feature common to the countries in the region is the relatively fast growth that has been experienced in recent years. annual real gdp growth in the region has been above 4 % since 2001 and catching up in real incomes is taking place. in 2003, for a third year in a row, the economies of the countries of south eastern europe grew faster, on average, than the countries in central eastern europe and the baltics that joined the eu last may however, estimates suggest that, in real gdp terms, the economies from south eastern european countries are still below from where they stood fifteen years ago, reflecting slow progress in transition in the early 1990s and economic disruptions due to wars and political turmoil. thus, in order to catch up with living standards in the eu strong growth is needed to foster real convergence. within the context of this conference south eastern europe is understood to comprise the following countries : albania, bosnia and herzegovina, bulgaria, croatia, fyr of macedonia, romania and serbia and montenegro. monetary performance across the region has also seen significant improvements in the recent past. up until 1998 no fewer than four countries in the region ( out of 7 ) had inflation rates that exceeded 20 % annually. after 1998 disinflation has proceeded and the median inflation rate among the countries in the region has remained in the single digits ever since. this is not to say that there are no challenges ahead on the disinflation front. in some cases inflation remains high and the challenge remains to continue bringing inflation down. in other cases, adjustments to administered prices and indirect prices may still cause a pick up in inflation. in those circumstances, the challenge is to avoid that temporary spikes in the inflation rate translate into increases in inflationary expectations. progress in bringing inflation down is being accomplished through a variety of monetary and exchange rate frameworks. one can classify the regimes in place in three different groups : ( i ) euro - based currency boards ( bosnia and herzegovina and bulgaria ) ;

global growth outlook is likely to persist for some time, and we need to be mindful that the prevailing financial crisis has already lasted five years, with no end in sight, the challenges facing the domestic economy are daunting. but not all of our problems can be ascribed to these global factors. there are numerous underlying structural problems in the economy which are exacerbated, but not necessarily caused, by these global developments. in line with the weak and deteriorating global outlook, the bank has been progressively downgrading its economic growth forecasts over the past year. growth in 2012 is expected to average around 2, 7 per cent, down from 3, 1 per cent in 2011. the most recent forecast for bis central bankers ’ speeches 2013 is a growth rate of 3, 8 per cent, but the risks are seen to be on the downside. according to reuters, the market consensus forecast for 2013 is 3, 3 per cent. growth rates of this order of magnitude will not have an appreciable impact on south africa ’ s unemployment rate which currently stands at 24, 9 per cent. it is instructive that during the high growth years between 2004 – 2007, when growth averaged around 5 per cent, unemployment declined to 21, 9 per cent but this was quickly reversed following the crisisinduced recession in 2009. so if these patterns are to be repeated, we would need a number of years of significantly higher growth than we are currently expecting simply to get back to pre - crisis levels of unemployment. however, the sustainable growth rate itself is constrained by the potential output of the economy, which, in turn, is determined by capacity and other structural constraints. at a simple level that implies that if we have unemployed resources or spare capacity in the economy, output can be increased in a non - inflationary manner. research done in the bank prior to the crisis showed that the potential output growth of the economy was between 4 and 4, 5 per cent. since the crisis, that has declined to around 3, 5 per cent. this decline may have been due in part to some destruction of capacity and we also now know that growth will be constrained by the lack of adequate electricity provision until sometime next year at the earliest. i should note that this does not imply that a growth rate in excess of 3, 5 per cent would necessarily be inflationary. currently the economy still has a negative output gap, which we estimate to be around 3, 5 per cent, which is indicative