pmi ) indicate that the manufacturing sector will likely record another disappointing performance in the third quarter. the pmi remained below the 50 threshold for two consecutive months, before recovering to a level of 50, 7 index points in september 2011, while the employment index has remained below the 50 index level. according to kagiso, the pmi leading indicator, measured as the ratio between new sales orders and inventories, remained at an early - 2009 low of 0. 85 in september. this is reflective of high inventory levels, well above the demand for factory goods. furthermore, the pmi average for the third quarter was 47. 2 index points ( 55. 1 recorded in the second quarter ), which does not bode well for actual factory output and growth in the third quarter. weak conditions on the production side reflect both the poor state of the global economy, as well as the deceleration in domestic demand conditions. domestic expenditure grew by 1. 3 per cent in the second quarter of 2011, from an annualised rate of 7. 9 per cent in the first quarter. household consumption expenditure decelerated significantly and government expenditure contracted. the combined impact of rising inflationary pressures that affect households ’ disposable income, falling consumer confidence, the still relatively weak housing market, declines in the value of assets, high debt burdens and reduced access to credit further adds to households cautiousness in their spending decisions. strong wage inflation during 2010 is also starting to take its toll on employment creation and the unemployment rate increased to 25. 7 per cent in the second quarter of this year ( although even through the boom periods, unemployment still remained high around 22 per cent ). continued labour bis central bankers ’ speeches shedding is expected to weigh on consumer spending going forward, while the lower growth trajectory, in turn, does not bode well for employment creation. other indicators pointing to a slowdown in economic growth, include the weaker growth and / or in some instances a decline in retail sales, vehicle sales and house prices. against this background, policy makers and economists have downgraded their growth forecasts for the year. the bank has lowered its growth forecast, due to the lower - thanexpected gdp outcome in the second quarter, the impact of industrial action on key sectors such as manufacturing, as well as a downward adjustment to the global growth assumptions. the bank ’ s latest projections show growth to average 3. 2 per cent in 2011, lower than the previous forecast of 3.

daniel mminele : a delicate balancing act – how to reconcile upside medium term inflation risks with near term growth concerns keynote address by mr daniel mminele, deputy governor of the south african reserve bank, at the bank of america merrill lynch 10th annual investor - to - corporate conference 2011, cape town, 18 october 2011. * 1. * * introduction good morning ladies and gentlemen. the topic i have been asked to speak on is quite an appropriate one at this juncture, but also a very difficult one, consuming the minds of many central bankers around the world, particularly in emerging market countries. the world has never fully come out of the crisis that started in 2008 ; we have just seen the form of the crisis evolving over time. now, four years later, the global economy appears to be once again on the precipice and could tilt in either direction, depending on the resolve of policy makers to finally put in place comprehensive and credible plans to fully address sovereign debt and banking sector risks, in order to deal with current near - term downside risks to the global economy. this should then open the way for undertaking the necessary structural reforms required to tackle underlying root causes, and thus put the global economy on a stronger, sustainable and more balanced footing in the medium term. my comments this morning will focus more generally on the dilemma facing many emerging market economies today, notably, elevated inflation and slowing growth. this is in stark contrast to the situation one year ago, when emerging markets were faced with rising inflation and stronger growth. thereafter, i will delve a little deeper into the inflation and growth dynamics in south africa. 2. reconciling inflation and growth real economic activity in advanced economies has slowed considerably, confidence has fallen sharply and financial sector risks have intensified. this has added to an already complicated environment, characterised by high levels of public debt. growth dynamics in emerging market economies are in much better shape than advanced economies, but interlinkages in the global economy render emerging markets vulnerable and they may not be in a position, as they were in the past, to carry the global economy. ultimately, emerging market growth is highly dependent on growth in advanced economies, as we saw recently after china recorded a sharp slowdown in exports, due to softer growth in the us and europe. emerging market central banks have also had to contend with strong capital inflows over the past few years owing to a search for yield, and resulting in appreciating currencies. we were