There's no reason to start gnashing our teeth just yet

The dramatic decline in the Australian dollar means there are a few advisers around town feeling smug about advocating offshore diversification at the height of the mining boom. The flight of the hot money out of the Australian market has left the Australian money markets a tad unstable.

For instance, so far this month there have been no public corporate bonds issued. This is in contrast to the $10.5 billion issued in May, led by big issues by NAB and Westpac.

June could be the first month since September 2008, when Lehman Brothers collapsed, that there has been no issuance.

But is it just a case of "unreasonable pessimism" as suggested by our Prime Minister? "The most irresponsible pessimists have tossed around the 'R' word, something not so much sinister as silly," Julia Gillard said this week.

So is a falling Australian dollar going to spur our manufacturing and tourism sectors back into life and we live happily ever after?

For starters there are those that believe the Australian dollar could remain annoyingly strong in the months ahead. They point out that, unlike Australia, the US will continue to print money over the next two years, just not as much as previously anticipated.

There are nine countries rated AAA by the major ratings agencies and Australia is one of them. Three of the nine countries (the Netherlands, Switzerland and Germany) are on so-called "watch" for a possible ratings downgrade. Australia is in a choice club, indeed.

We pay good rates, too. The yield on a 10-year Australian government bond, at about 3.9 per cent, is double that of the average of its peers, encouraging demand for our Australian dollar-denominated paper. Compared with Switzerland for instance, investors in Australian government bonds are offered more than a 2.5 per cent better yield.

Sovereign wealth funds can typically only buy bonds of countries rated AAA. In other words, our currency could retain some of its former haven status despite fears about a slowdown in China.

As for a manufacturing sector rebound, a cold shower may be required. Manufacturing's share of GDP has been declining for decades - not just since the Australian dollar began its climb. When Gough Whitlam was running the country in the early 1970s, the manufacturing industry contributed about 16 per cent of gross domestic product. These days it is closer to 7 per cent.

Take a look at the global comparison on the website of the US Bureau of Labour statistics. Manufacturing unit labour costs have deteriorated more in Australia over the past decade than 18 major developed countries. It's a long way back to competitiveness. So if it's not manufacturing, what is going to replace the best years of the mining boom as the driver of growth?

It is unlikely the government sector will drive growth, given job cuts flagged or already implemented at state and federal level.

However, local interest rates are at expansionary levels. It takes a while for that to flow through to the real economy, but surveys of consumer confidence are showing some positive signs. Discretionary spending, that is at department stores and restaurants has been steadily improving. A recovery in the local housing market will also do its best to boost growth.

Meanwhile, there is the prospect of stronger export volumes off the weakened currency and stronger global demand.

While economists are marking down the growth prospects of our biggest trading partner China (which accounts for close to 35 per cent of our total exports) they are marking up expectations of growth in Japan. Japan, our biggest trading partner until about five years ago, still accounts for just under 20 per cent of our exports. Signs look better there with economists upgrading growth forecasts.

With any luck, those predicting the demise of our mining industry may be getting ahead of themselves. Gone might be the record prices but we are now entering the export phase of the mining boom, where recent big investment in projects is turned into higher production.

Even after the canning of $150 billion of mining projects there remain more than $200 billion of projects under construction. That means a lot more iron ore, coal and natural gas to sell. Which is great while it lasts.