in households ’ real disposable income and lower interest rates. tax reductions and relatively high wage settlements supported growth in real disposable income. expenditure on durable and semi - durable goods increased at a brisk rate. real government consumption expenditure also rose further mainly on account of the acquisition of another corvette. preliminary indications for the second quarter of 2004 are that growth in real gross domestic expenditure probably remained fairly strong. solid consumer confidence and buoyant retail trade sales point towards this conclusion, as well as a quarter - on - quarter rate of increase of 3, 6 per cent in new vehicle sales. formal non - agricultural employment declined at an annualised rate of 1, 7 per cent in the first quarter of 2004. both the public and private sectors experienced declines. nominal remuneration per worker rose at a year - on - year rate of 9, 4 per cent over the same period. overall labour productivity increased at a year - on - year rate of 3, 3 per cent in the first quarter of 2004 containing unit labour cost to a yearon - year rate of increase of 5, 9 per cent. notwithstanding the recovery in world economic growth, the volume of south african exports contracted further in the first quarter of 2004. however, the value of exports increased on account of the marked improvement in the prices of south african export commodities. import volumes also declined somewhat in the first quarter of 2004 because of a decrease in crude oil imported. accordingly, the deficit on the current account of south africa ’ s balance of payments receded slightly to 1, 6 per cent of gross domestic product. at this level it was easily financed by inflows of direct and portfolio investment. preliminary information for april and may 2004 indicates a possibly slightly weaker trade balance in the second quarter of 2004. however, in the second quarter of 2004 the proceeds from the republic of south africa ’ s global bond issue of $ 1 billion supported investment flows into south africa. in the first half of 2004, the reserve bank continued its accumulation of foreign exchange reserves and the strengthening of its international liquidity position. the potential impact of these transactions on domestic money - market liquidity was sterilised by means of open - market operations. the exchange rate of the rand against a basket of currencies strengthened by 16 per cent in the year ending december 2003 and, on balance, appreciated by a further 8, 2 per cent in the six months to the end of june 2004. this appreciation occurred despite the setback to international prices

of commodity exports in the second quarter of 2004 in response to indications that steps would be taken to cool down buoyant economic growth in china. while these movements of the exchange rate of the rand reduced the international competitiveness of south african producers, it resulted in a decline in the year - on - year change of imported goods over the past 14 months, notwithstanding a significant increase in the international price of crude oil over this period. goods price inflation therefore moderated further both at the production and consumer level. by may 2004, cpix inflation had been maintained within the 3 to 6 per cent target range for nine months in succession and the year - on - year rate of increase amounted to 4, 4 per cent in each of the three months to may. twelve - month growth in m3 remained brisk though it decelerated from 12, 6 per cent in april 2004 to 11, 9 per cent in may. credit extended by banks by means of mortgages, instalment sale and leasing advances to the domestic private sector recorded strong growth in 2004 under conditions of lower interest rates, rapidly increasing domestic expenditure and rising house prices. growth in total loans and advances to the private sector nevertheless decelerated from 10 per cent in april 2004 to 9, 1 per cent in may owing to a decline in overdrafts. yields on long - term south african government bonds increased sharply from 8, 87 per cent on 17 january 2004 to 10, 26 per cent on 15 june in response to the weaker exchange value of the rand and inflation concerns arising from strong real economic activity and the higher price of oil. subsequently, bond yields fell back by about 50 basis points as the recovery in the external value of the rand scaled down inflation concerns. on balance, the trend in domestic yields closely followed that of us government bond yields from the beginning of march 2004. in the share market, prices on the jse securities exchange sa fell back by 9, 7 per cent from a recent peak in march 2004, in contrast to the bull rally in the preceding ten months. the real - estate market remained buoyant and house prices continued to increase at a brisk pace, recording nominal year - on - year rates of increase of around 24 per cent in the first half of 2004. however, month - on - month rates of increase in nominal house prices indicate that the prolonged boom in this sector could be losing some momentum in 2004. the authorities continued to pursue a cautiously expansionary fiscal policy, recording a public - sector borrowing