and reached an annualised level of 9 per cent in the second half of the year. this rate then receded to a still high 8 per cent in the first half of 2003, brought down by a decline in the fixed investment of the agricultural sector associated with lower profits of farmers because of the marked drop in the prices of some key agricultural products. other sectors continued to spend large amounts on the replacement of obsolete capital equipment and the development of new ventures. this demonstrates that positive expectations and sound fundamentals can sometimes carry more weight in fixed investment decisions than the level of short - term interest rates. in contrast to the continued strong growth of domestic demand, exports performed less well. in fact, the volume of exports of goods and non - factor services declined by 1½ per cent in 2002 and by a further 2½ per cent in the first half of 2003. with the exception of receipts from tourists visiting south africa, the exports of other goods and services were negatively affected by the decline in global economic activity. in 2002 the decline in the volume of exports coincided with an increase in the volume of imports. despite a decrease in crude oil imports, the volume of total imports continued to increase in the first half of 2003. the terms of trade strengthened in both 2002 and the first half of 2003, while net dividend and interest payments declined. these developments could nevertheless not prevent the balance on the current account from reverting from a surplus in 2002 to a deficit of 1 per cent of gross domestic product in the first half of 2003. this deficit was more than neutralised by a financial inflow from the rest of the world consisting mainly of foreign direct investment, borrowing by the south african government in international capital markets and net inflows of other portfolio capital. as a result, the gold and other foreign reserves of the country rose from us $ 12, 6 billion at the end of 2001 to us $ 18, 5 billion at the end of june 2003. on the monetary and financial fronts, the main developments during the past eighteen months can be summarised as follows : 1. the rate of increase in the monetary aggregates slowed down significantly. for instance, the growth in the broadly defined money supply ( m3 ) measured over periods of twelve months declined from around 19 per cent in the early part of 2002 to less than 13 per cent in december 2002 and to single - digit rates during most of the first six months of 2003. the weaker demand for money reflected a slowdown in inflation and a weaker

in the first half of 2003. this deceleration in economic growth was spread across most sectors, with agriculture output actually contracting in the first half of 2003. the slower growth was accompanied by an increase in aggregate employment in the formal non - agricultural sectors of the economy in 2002. an employment gain of 54 000 workers was recorded. however, preliminary indicators point to a loss in employment opportunities in the first half of 2003. over the same period, productivity growth receded while the average remuneration per worker rose at an estimated annualised rate of 10 per cent. as a result, nominal unit labour cost continued to increase at a rate above the upper limit of the inflation target band of 6 per cent. the decline in the rate of economic growth was due to a fall in the volume of exports, whereas domestic demand continued to increase strongly. the level of short - term interest rates seems to have had little effect on domestic demand. the rate of increase in domestic final demand declined only marginally from 4 per cent in 2002 to 3½ per cent in the first half of 2003. the annualised growth in real gross domestic expenditure nevertheless remained at 4½ per cent in the second half of 2002 and in the first half of 2003. growth in real household consumption expenditure slowed only slightly from an annualised rate of 3 per cent in the second half of 2002 to 2½ per cent in the first half of 2003. the sustained high growth in consumption expenditure was made possible by relatively strong increases in personal disposable income as well as by a rise in household debt. household disposable income benefited from higher salaries and wages, improved social transfers from government and income tax reductions. at the same time, the low level of the debt - to - income ratio of households and expectations of imminent reductions in interest rates encouraged some households to incur debt. real household consumption expenditure accordingly retained a large part of its earlier buoyancy at the cost of a significant increase in debt. the ratio of household debt to disposable income was nevertheless still relatively low at 53 per cent at the end of june 2003. the steadfast growth in household consumption expenditure was accompanied by an annualised increase in real government consumption expenditure varying from quarter to quarter between 3½ and 4 per cent throughout the past year. these growth levels have been maintained since the beginning of 2001 and signify the greater emphasis on service delivery in government ’ s fiscal strategy. the rate of increase in real fixed capital formation picked up during 2002