Australia’s economy seems to be coming through the period of collapse in mining investment relatively well. The economy has continued to grow despite collapsing business (mostly mining) investment spending. Private engineering construction spending, for example, fell 43.5% in real terms through to Q3 2016, while total private non-dwelling construction spending fell by 32.1% over the same period. Other non-mining parts of the economy have had to lift not just to fill the hole left by sharply falling mining investment spending – that would have left growth at zero – but to overfill the hole.

The evidence is that other parts of the economy have provided the necessary overfill with a big chunk coming from exports and housing activity, up respectively 13.0% and 18.6% in real terms over the same two-year period. Rising household consumption expenditure has also contributed, rising by 5.4% over the same period. These percentage gains look relatively small compared with the fall in private non-dwelling construction but exports, housing and household consumption combined account for 83.9% of GDP compared with 5.5% of GDP for private non-dwelling construction.

The reasons why other parts of the economy have stepped up or adjusted so well to compensate include probably a legacy of past economic reforms from the 1980s through early 2000s reducing rigidities in the labour market, reducing trade protection, partially reforming taxes and business regulation. A key reform from early in that period was floating the Australian dollar exchange allowing it to become a sort of automatic economic stabilizer, moving upwards in periods when rising export prices are boosting national income, and moving downwards when falling export prices are reducing national income.

The RBA’s ability to conduct effective monetary policy through the period also seems to have played a part. Flexible use of a medium-term inflation target band has allowed the RBA to set interest rates a little higher than normal when the economy has threatened to overheat while lowering interest rates below normal, helping to accommodate more growth when downside threats to growth have been prominent over the past few years during the sharp mining investment downturn.

It is worth noting that the RBA would not have been anywhere near as effective performing this monetary policy role if the exchange rate had been in any way fixed or manipulated. Also, the relative flexibility in many part of the labour market allowing employers to adjust hours worked in need and providing some flexibility negotiating wage changes has also helped the RBA set monetary policy effectively.

Low borrowing interest rates have undoubtedly helped to sustain the strong lift in overall housing activity over the past two years helping to feed greater household consumption spending. Higher house prices boosting household wealth have also contributed to stronger household spending too.

These are some of the adjustments in the Australian economy that have allowed it to come through an extended and savage collapse in mining investment that when it started around three years ago was viewed by most analysts as likely to cause Australia to suffer a recession. The Australian economy has performed more flexibly than widely expected.

Another set of adjustments is now facing the Australian economy. The main downside threat from falling mining investment spending is almost over. RBA Governor, Philip Lowe, speaking last week indicated it is perhaps 90% complete. One early gauge of whether Governor Lowe’s assessment is in the right ball-park will come from Q4 private new capital expenditure due on Thursday. Focus will be on the first estimate of 2017-18 planned capital expenditure contained in the release. If planned capital expenditure comes in around $A84 billion implied in various surveys of analysts it will be about the same as the first estimate of 2016-17 planned capital expenditure released a year ago. Businesses will not be planning to cut capital expenditure in the approaching financial year for the first time in three years.

If business investment spending stops falling it will stop detracting from economic growth which would imply that GDP growth accelerates and possibly sharply reflecting the growth running through exports, housing activity and household consumption spending. Fairly quickly in this scenario, the exchange rate would rise and the RBA would start to lift its cash rate too. The period of rapid growth would be short-lived.

A more likely scenario, however, is that the moderating fall in mining investment is not the only adjustment likely to run through the economy. There are signs in falling home building approvals that home building activity has peaked. A peak in housing also implies moderating growth in household consumption expenditure. Exports are lifting sharply, but their fortunes are tied to large degree on demand for commodities from China. Moves in China to temper their residential construction boom may also temper their demand for commodities down the track. These shifting fortunes for contributors to Australian growth make it hard to be too confident forecasting total GDP growth and urges caution for policymakers such as the RBA.

Another set of adjustments for the Australian economy is approaching possibly generated in part by the rapidly fading negative pull from declining mining investment spending. Past economic reforms and the flexibility afforded to policymakers such as the RBA provide a good chance for the economy to adjust well.