and balanced policy response that will contribute to a more sustainable growth path for our economy. in an effort to do justice to the topic i was asked to address today, i will try and assess how we got into this unpleasant juncture, and what policy can do about it. but let me first say a few words about monetary policy in major advanced economies and its effect on south africa, given just how important a swing factor this is for our policy considerations. carmen m. reinhart and kenneth s. rogoff examined the evolution of real per capita gdp around 100 systemic banking crises. they found that on average, it takes about eight years to reach the pre - crisis level of income ; the median is about 6½ years. see american economic review papers and proceedings, may 2014 ; recovery from financial crises : evidence from episodes * http : / / www. nber. org / papers / w19823. bis central bankers ’ speeches diverging policies global monetary policies we know that the onset of the global financial crisis saw a synchronised response by central banks across the world. there was a coordinated effort to loosen monetary policy to cushion the world economy against what would probably have been a devastating collapse. these accommodative policies have indeed succeeded in helping to protect against a protracted global recession, and have also underpinned a global economic recovery. however, the pace and extent of recovery has been uneven, which has resulted in diverging policies across the major developed economies. after a disappointing start to the year, the us economic performance has been better than expected in recent quarters. the weather - related contraction of the first quarter was followed by a strong rebound in growth in the second quarter, with the strong momentum maintained into the third quarter. the economy is estimated to have grown at a better - than expected 3, 9 per cent in the third quarter, with leading indicators such as the pmi pointing to strong growth in the final quarter of the year. the job market has also improved considerably, with the unemployment rate declining to 5, 8 per cent in september, the lowest level since june 2008. in line with this stronger than expected performance of the economy, the fed concluded its quantitative easing programme in october and this has raised expectations of a policy rate hike in mid - 2015. the pace and timing of normalisation of policy rates, as repeatedly stated by the fed, will largely depend on the economic and inflationary developments and the fed ’ s interpretation thereof. with a lot

of slack still remaining in the us labour market, one would expect the fed to be cautious to not impede the recovery by moving too soon and too aggressively. inflationary pressures are also expected to remain largely contained by a strong dollar and lower energy costs. the fed will therefore face a less difficult trade - off between above - target inflation and consolidating growth. as such, the base case appears to one of a gradual normalisation of the fed ’ s policy rate. the uk recovery also appears to be on track, with the economy growing 2, 8 per cent in the third quarter and the unemployment rate falling faster than expected, reaching 6 per cent at the end of the third quarter. although the bank of england has maintained its asset purchases at £375 billion and interest rates at 0. 5 per cent, sentiments are slowly shifting with some policymakers starting to vote for a policy rate hike. however, with the decline in the inflation rate to below the 2 per cent target, faltering growth in europe, and soured trading and financial relations with russia, a delay in policy normalisation appears likely. in contrast to the positive developments in the us and the uk, growth in the euro area and japan has stalled, with policymakers in these countries indicating their willingness to take strong remedial action to mitigate against a protracted recession and extremely low inflation. the outlook for the euro area has deteriorated over the year, with growth forecasts by the european commission having been revised downwards in november, from 1, 2 and 1, 7 percent to 0, 8 and 1, 1 per cent for 2014 and 2015 respectively. more worrying has been the shift of the weakness from the periphery to the core, notably france and germany. the euro zone is also battling with extremely low inflation, with cpi growing by a meagre 0, 4 per cent in october, uncomfortably close to deflation and far below the ecb ’ s target of close - tobut - below 2 per cent. the ecb has responded to these challenges by cutting its policy rate further in september and introducing a new stimulus plan2 involving the purchase of investment - grade asset backed securities issued by the non - financial private sector as well as covered bonds of the financial sector. and we have had strong indications from policy makers again during this week that should these measures prove to be insufficient, the the ecb expects that the purchases of asset - back securities and covered bonds under the new programme, together with the targeted