Expect a bumpy ride as mining boom peaks
Australia's top economists warn the fallout from the end of the peak of the mining investment boom could be messier than expected.
They also believe the so-called economic "baton change" from mining to non-mining parts of the economy could take longer than thought.
There is some uncertainty about whether we have already passed, or whether we are about to pass, the peak in mining investment.
But all agree it will not be a seamless process as non-mining parts of the economy "fill the gap".
Much will depend on things that are out of our control, such as the relative value of the dollar and the rate of Chinese growth.
This means Australian governments will need to respond to economic conditions with suitable fiscal policy. Economists warned against ideologically popular "austerity" measures.
"There are increasing indications that the end of the mining investment boom may be even more abrupt than previously anticipated," National Australia Bank chief economist Alan Oster said.
"While a falling Australian dollar and lower borrowing rates will help to shield the Australian economy from the worst effects of the ending of the labour intensive mining investment phase, they are unlikely to be enough to prevent unemployment from rising this year."
Overall, economists expect economic growth to remain "below-trend" for the foreseeable future - some say two years - thanks to a slower-than-expected recovery in the non-mining sector.
They also predict the unemployment rate will increase to an average 5.9 per cent by June next year, above the budget forecast of 5.75 per cent.
The Australian dollar has surprised many in recent months by falling from parity with the greenback to stabilise about US92¢.
Economists have revised their expectations for the value of the dollar. This week Credit Suisse forecasters said they believed the dollar could hit US75¢ within 12 months. Economists say the dollar will need to drop further than its current US92¢ to help the transition.
"Certainly some sectors will benefit from lower Australian dollar and lower interest rates but those same sectors will also be adversely affected by the decline in demand as mining investment declines," Nigel Stapledon, of the Australian School of Business, said.
There are key parts of the non-mining economy that will need to do some heavy lifting during the transition.
"The sectors that are most interest-rate and exchange-rate sensitive are expected to be areas of the economy that will pick up and take over as drivers of growth," HSBC Australia chief economist Paul Bloxham said.
"These include the housing market, housing construction, the retail sector and tourism industries."
Shane Oliver, the chief economist from AMP Capital, believes mining investment "likely already peaked, probably in the second half last year".
He says non-mining growth will be led by housing construction, retailing and then eventually in areas like domestic tourism, manufacturing and higher education as the benefits of a lower Australian dollar feed through.
Australian Workers Union economist Misha Zelinsky said a falling dollar would improve growth prospects for trade-exposed sectors such as manufacturing and tourism.