Australia's economic growth rebalancing progressing reasonably well

Resource investment retrenchment an easing headwind. Mining investment peaked in Q4 2012 and by Q2 2015 it had declined by 33% - or from around 8% of GDP to 5%, according to the RBA. But it estimates that the decline is only about half-way complete. However, the speed of decline is likely to slow in 2016 and beyond, making this an easing headwind. Perhaps the fact that the share of this factor in total GDP is shrinking rapidly will also ease the downside impulse. 

Low rates, exchange rate supporting growth in other investment. Non-resource investment is likely to continue its upward trend. Three factors stand out: One, further reductions in Australian interest rates early in 2015 appear to be stimulating corporate credit demand, which likely reflects rising investment activity. Two, the depreciation of the currency is supporting exports of services, and this is in turn supporting investment. Three, residential investment remains in a strong expansion phase, though the speed of growth is likely to ease in 2016, as suggested by stabilising housing approvals. 

Exports a major boost to growth. As has been the case in 2013 and 2014, net exports will remain a key growth driver, at least in volume terms - in value terms the sharp decline in export prices dominates for now. Strong growth in net exports reflects rising commodity export capacity (especially LNG) and exports of services, as well as weak imports as resource investment declines and domestic consumption grows modestly. 

Consumption growth slowly picking up, but remaining sub-trend. Strong employment growth of around 2% p.a. provides a solid base for private consumption, as do strong positive wealth effects from house prices. However, weak nominal wage growth limits nominal wages and salaries growth to around 4½% and a little less than 3% in real terms. Meanwhile, despite the hype about austerity, public consumption growth remains respectable.