return to risk taking in financial markets, potential owners of real capital in the developed economies have not yet been prepared to step forward in significant numbers and take a risk. consumer demand has been soft and businesses have wanted to wait and to see what happens. they have felt more comfortable leaving their money in bank accounts earning very low rates of interest, rather than taking the chance and investing in new capital. this change in corporate attitudes is, i suspect, one of the enduring but underappreciated consequences of the financial crisis. at the aggregate level, the australian economy has been shielded from its effects by developments in the resources sector, but some areas of the economy are clearly feeling the impact. finally, a fourth factor that has had an effect on the overall level of investment in australia is the change in household spending behaviour. unlike in earlier years, growth in household consumption is no longer running ahead of growth in household income. the step - down in the rate of growth of retail spending in particular has reduced pressure on capacity and affected rents for retail properties. there has also been some reassessment of the appropriate model of retailing. the result can be seen in the abs ’ s estimates of total investment in the retail industry which, as a share of gdp, is at the lowest level for many bis central bankers ’ speeches years ( graph 7 ). the abs data also suggest that there has been some flow - on effects to investment in the wholesaling industry, which is also at quite a low level. so, in summary, the high exchange rate, uncertainty, risk aversion and the changes in household spending behaviour have all weighed on non - mining investment over recent times. as a result, non - mining investment has made little contribution to growth in the overall economy ( graph 8 ). this is at a time when mining investment is no longer increasing, with the mining boom transitioning from one based on investment to one based on production. as best we can tell, mining investment declined over the past year, while net exports rose strongly due to lower capital imports and the higher production of bulk commodities made possible by the earlier investment. looking forward so having looked back at what has happened so far, i would now like to look forward. over the period ahead, the level of mining investment is likely to decline substantially as existing projects are completed. the exact profile remains difficult to determine, but it would not be surprising if mining investment, relative to gdp, declined by 3 percentage points or more

sound shape and firms having significant holdings of liquid assets. it has occurred despite financial institutions reporting that they are willing and able to lend. and it has occurred despite lending rates being at record lows for both large and small businesses ( graph 4 ). so the obvious question is : why is this happening? as usual, there is no single answer, but i would like to highlight four factors. the first is a technical point, but a relevant one nevertheless. the investment figures i have quoted are for nominal investment relative to nominal gdp. most of the time, this provides a reasonable guide as to what is going on. but over recent years, the price of capital equipment has fallen markedly, partly due to the appreciation of the exchange rate, which has reduced the price of imported goods. the lower prices mean that for a given amount of capital spending, the economy obtains more units of capital. as a result, while total non - mining investment as a share of gdp is lower than it was in the recession of the early 1990s, the non - mining capital stock is increasing a little more quickly than it was at that time. in a sense, we are getting more bang for our buck. the second, and ultimately more important factor, is the exchange rate. as i have talked about on previous occasions, australia ’ s floating exchange rate regime has played an important role in stabilising the australian economy. 1 the appreciation of the australian dollar since the mid 2000s is perhaps the single most important reason why the australian economy has digested a boom in mining investment without overheating and without developing the imbalances that typically accompany such booms. that is the good news. but in playing this stabilising role, there is also a downside. the exchange rate appreciation has taken pressure off domestic capacity by making it cheaper for australians to buy imported goods and by reducing the competitiveness of firms in export markets. in so doing, it has reduced the return on capital in those traded sectors that are not see lowe p ( 2013 ), “ internal balance, structural change and monetary policy ”, address to the australian industry group 13th annual economics forum, sydney, 19 march. bis central bankers ’ speeches benefiting from high commodity prices, and thus reduced the incentive to invest. this is perhaps most obvious in the manufacturing and tourism sectors, where the level of investment, as a share of gdp, is very low by historical standards ( graph 5 ). indeed, in these industries, the current rate