Mining investment is sliding faster than expected and the biggest risk to the Australian economy is that the slide could accelerate, in response to cost overruns and below-trend global growth in demand.
The Reserve Bank's latest statement of monetary policy is less bearish that some had feared, though anything but bullish. It slashes the bank's growth forecast for this year, while leaving the forecasts for next year untouched and even nudging its forecast for 2015 a little higher.
But all that is qualified by risks and uncertainties, as it tries to gaze into the unknowable future. And the biggest risk is an acceleration of the slide in mining investment.
"While the expectations component of the (March) Capex survey remains strong, this is inconsistent with information from the bank's liaison, few new commitments to mining projects, and a lack of current expenditure on the development and planning work that would typically precede new projects," the Reserve Bank reports.
"This is especially noticeable in the coal industry, where lower prices of late have led to a significant curtailment of this type of expenditure.
"Given this, the expectation is that mining investment will decline somewhat over the next year or so, before falling away more noticeably thereafter."
The RBA says the main game for the economy is "a transition in the drivers of growth from mining investment to other parts of domestic demand and to exports". And while it is cautiously optimistic that the transition will be relatively smooth it adds a strong note of caution.
"There remains considerable uncertainty about how this transition will proceed. The forecast for mining investment remains uncertain.
"Also, there are still several proposed large projects slated for later in the forecast horizon (2014-15), and there is considerable uncertainty about their prospects. With little planning and development for other new policies underway, mining investment could fall away faster than anticipated.
"However, with commodity prices forecast to only decline modestly, lower domestic costs in foreign currency terms (as a result of exchange rate depreciation and reduced demand for labour inputs) could lead to new projects being slated."
The Reserve's baseline case is for the country to muddle through. It has slashed its growth forecast this year from 2.75 to 2.25 per cent, continuing the slow pace of growth in the six months to March. With the population assumed to grow by 1.8 per cent a year, the real bottom line, GDP per head, is expected to grow by roughly 0.5 per cent, or just a third of its long-term average.
But the Reserve has left its forecasts for next year unchanged at between 2.25 and 3.25 per cent, the wide range of possible outcomes reflecting its uncertainty.
By the end of next year its best guess is that GDP growth will be back to its trend rate of 3 per cent, and it thinks could rise to 3.5 per cent by the end of 2015.
The unchanged forecasts for 2014 result from changed assumptions. It assumes an exchange rate of US90¢, as against US100¢ in its May forecasts, and a cash rate of 2.5 per cent into the future, reflecting this week's rate cut. These have pushed the forecasts up considerably from what they would have been.