first quarter of 2004 as the rebound in manufacturing production made inroads into stocks. the continued expansion in economic activity at first seemed to have had the desired effect on employment creation and from 2002 onwards there were some quarters in which increases were recorded in the formal non - agricultural employment in the economy. on balance, employment creation in the non - agricultural sectors of the economy continued to be disappointing and it seems that the total number of persons employed declined in the current upward phase of the business cycle. the creation of employment opportunities will be crucial if we are to improve people's lives in the years ahead. considerably more success was achieved on the inflation front during the past year. the twelve month rate of increase in the cpix declined from a recent peak of 11, 3 percent in november 2002 to 4, 0 percent in december 2003 and then rose to a still low 4, 4 percent in may 2004. a number of factors have been identified in our monetary policy statements explaining this favourable inflation outcome, which i won't repeat again this evening. it is generally expected that the high petrol and diesel price increases at the beginning of june 2004 and increases in the prices of medical products would have caused inflation to rise in that month. this should only be a temporary upward movement, which will probably again be reversed in the subsequent month. projections using the sa reserve bank's econometric models indicate, however, that cpix inflation could move above the upper boundary of the inflation target range towards the end of the year. fortunately, this is also expected to be reversed relatively quickly and is not a significant cause for concern. as already indicated, the increase in domestic expenditure led to a marked rise in the volume of imports during 2003. in the first quarter of 2004 the volume of imports contracted owing to a decline in the imports of oil. the volume of south african exports has fluctuated around a more or less horizontal trend since the second half of 2001, which brought about a substantial deterioration in the real trade balance over this period. this was accompanied by an improvement in the average terms of trade of 2½ percent in 2002, 4½ percent in 2003 and by a further 2½ percent in the first quarter of 2004 in comparison with the fourth quarter of 2003. these favourable price developments were unable to prevent the current account of the balance of payments from moving into a deficit. the improving terms of trade nevertheless kept the deficit on the current account of the balance of payments at a level of about 1½ percent of gross domestic

lack of demand for building work. the household sector experienced some financial strain as job losses constrained disposable income. although most indicators show that the decline in the real economy had bottomed out in the first half of 2009, consumers were, until the third quarter of 2009, still somewhat pessimistic about the prospects for future performance of the economy and its impact on their finances. the elevated rate of unemployment continued tight lending conditions and a need to address weaker household balance sheets are expected to continue to impact consumption expenditure negatively. also, on average, the credit standing of consumers has continued to deteriorate. i have briefly highlighted the key issues raised in the financial stability review. more detailed analyses are available in the publication itself, and will be highlighted by the authors ’ presentations. i trust that you will find these interesting, stimulating and relevant to the current environment and invite you to provide comment as part of the important process of ongoing debate on financial stability. thank you.