Real GDP, on a per capita basis, grew from R44 000 to R54 000. 1 This partly reflected marked structural improvements in the country: a much better fiscal situation, a switch to inflation targeting, and South Africa opening to world trade and financial flows. But, in the mid- to late-2000s, these structural improvements coincided with powerful cyclical forces.
Soaring terms of trade and robust borrowing sent growth levels to well above potential, understood as the rate of expansion which does not accelerate inflation. The economy overheated as prices for labour and capital resources were bid up and export prices increased continuously. Moreover, sustained growth in house prices revealed an asset price bubble which had developed in response to low credit costs.