This is an economy in transition. Far from a steady state. And there will be significant changes over the next few years, playing havoc with the outlook for different sectors and regions.

In my previous article (in the October issue of Professional Planner) I outlined a “mud map” of current and prospective changes in Australia’s economic drivers. Briefly, the structural change that we underwent to “make room for the mining boom”, underwritten by the rise in the Australian dollar and punctuated by the global financial crisis (GFC), will now reverse.

The currently still-too-high Australian dollar and the impact on competitiveness is still causing loss of industry, some permanent. It will only gradually decline, underwriting a recovery in export and import-competing industries, starting with services and spreading to agriculture, mining and manufacturing.

Currently-falling government investment will recover in one to two years’ time, as the states become developers and start financing infrastructure projects through asset sales, offsetting the continuing negative impact of cutting budget deficits.

To those talking of “bubbles”, my response is that this is just another residential cycle. Left to its own devices, the recovery will run its course. It is being driven by a pent-up demand for housing and will last longer where that pent-up demand is greatest, notably Sydney and Brisbane, but quickly running out of steam in Melbourne and Canberra.

Apart from mining, the rest of the economy still hasn’t recovered from the financial shock of the GFC, cutting costs and deferring investment, with “productivity” initiatives to cut staff. For some it has been a matter of survival, for others a means of increasing profits. Most Australian companies (by number) are still struggling. It’s been six years now, and we’re a long way from a growth mode. Many will have forgotten what a growth logic is like.

Non-mining business investment remains weak, affecting related services. It will take years to build momentum. The recovery is just beginning, but you have to look hard to see it.

Given the weakness of the economy, with inflation contained, interest rates will remain low for some time yet.

Resources production will continue to grow strongly through the rest of this decade, but investment will fall. Anticipating this, and more difficult trading conditions, mining companies have already started to cut costs and services.

But the decline in mining investment has hardly begun. We think it will fall by 40 per cent over the next four years. The major impact on mining services and regions is yet to be felt.

This is far from a steady state. Over the last few years, the non-mining sectors have weakened further, resulting in dismal employment growth.

Worst hit have been the trade-exposed industries, with further declines in manufacturing and agriculture plus difficulties for some parts of mining. Boosted by the initial fall in the dollar, inbound tourism has started to recover. The next stage is for that to flow on to reduce the level of outbound tourism, education services and business services. But further falls in the dollar will be required. My fear is that the dollar will fall too slowly.

Business services have been hit hard by the combination of weak investment and the high dollar. Gross value added fell by 4 per cent through last financial year. This sector has been the mainstay of the Australian economy, with consistent above-average growth in demand and employment over the past 20 years. The current weakness has driven another round of staff cuts. Employment fell sharply last calendar year and is only now starting to recover, heralding the beginning of what will be a moderate, rather than spectacular, recovery. The real boost to business services will come as investment recovers.

Growth and employment in finance, telecommunications, manufacturing and wholesale trade have been soft for two years. The strength of construction has been boosted over the past decade by mining, and has now picked up on the back of the residential recovery, but faces a dismal prospect as mining investment declines. Only health, and to some extent education, have continued strongly post-GFC in the face of the high dollar.