of previous trends and were regarded as the outcome of the successful implementation of recent market reforms. at the ecb, we were of the view that it was advisable to remain cautious as these developments may be cyclical. unfortunately, the latest available national account data released by eurostat in autumn 2007 have corroborated our concerns. the latest available data ( see table 1 ) show that labour productivity growth declined in the second quarter of 2007 and currently stands well below its peak at the end of 2006. what makes this development complicated, as i said before, is the fact that the assessment requires the short - term, cyclical element to be disentangled from the longer - term trends or structural changes. labour productivity – that is the output per unit of labour ( either in terms of persons or hours worked ) – may change due to the amount of capital or machinery put at the service of workers, technological progress or managerial efficiency gains, or the current economic situation leading to higher or lower capacity utilisation. disentangling the short and longer - term nature of changes in all these factors in real time is probably difficult at company level, but even more complex at an aggregate level for sectors and the economy at the whole. in practice, we use a wide range of indicators, including some time - series techniques, for our assessment. simple trend estimates extracted from macroeconomic time series tend to be unreliable. therefore, rather than focusing on one or more of these summary indicators, a real - time economic analysis of the degree of permanent changes in productivity ( or productivity trend ) incorporates a broader set of indicators. from this perspective, several available indicators corroborate our view that the recent developments have to be seen rather as a cyclical phenomenon and not necessarily as a change in the underlying trend. first, our own estimates of trend labour productivity suggest that the trend has not shifted upwards by a big margin, if at all. second, from a historical perspective, the pace of improvements in the services sector remains modest compared with that of the early 1990s. third, although there has been a pick - up in the contribution made by innovation and other efficiency gains to labour productivity growth, this remains subdued by historical standards. furthermore, the contribution from capital deepening, namely the growth in capital used per unit of labour, further suggests that recent developments in labour productivity may very well be associated with a cyclical pick - up in investment activity. what makes the development important is the fact that productivity is

in infrastructure, housing, retail, banking, telecoms and tourism continues to accelerate, sustaining growth rates in most sub - saharan african countries. in the year ahead global financial market conditions, in other words global liquidity, are likely to become more challenging. this should, however, be offset by improving growth prospects in the real economy. countries with sound fiscal and monetary positions and those with higher savings rates are likely to benefit from this complex interplay of rising interest rates and improving economic performance in advanced economies. in this complex milieu, south africa ’ s economic performance is disappointing. projected gdp growth of 1. 5 per cent this year will mark the fourth consecutive year of slowing growth. global factors, in particular falling commodity prices and declining global liquidity, are contributing to our below par performance. furthermore, lower demand for commodities from china and slow growth in europe, our major trading partner, have affected our export performance. however, in the main, the reasons for our slow growth are domestic. the five month - long strike in the platinum sector, followed by a month - long strike in the iron and steel industry, resulted in negative spill - over effects for the entire economy. these two strikes reduced manufacturing output and depressed household consumption, which negatively impacted on the performance of retailers, contributing to the downward revision to our growth forecast. strikes are not usually a macroeconomic issue. they tend to occur every few years and are generally settled peacefully and speedily. but in the past two years strikes appear to be longer and more violent, with an apparent breakdown in the tried and tested dispute resolution processes contained in our labour relations regime. without assigning blame to any party for this breakdown, a fraught labour relations environment cannot be consistent with policies aimed at growing labour intensive sectors of the economy. of particular concern are high salary settlements that are out of kilter with inflation and productivity growth. firms often adjust to such salary increases by reducing staff numbers. about 48 000 jobs have been shed in the mining sector in the past two years and more mining companies have announced plans to reduce staff numbers. similarly, in the past few months, the media have reported on planned retrenchments by mtn, telkom and ellerines. in a country with an unemployment rate of 25. 5 percent, this trend has to be of concern to policy makers. the second immediate constraint on the economy has been electricity supply. electricity production has been flat for almost six years. while energy efficiency has enabled many firms and