we can do is preserve the flexibility that the economy has, and enhance that flexibility wherever we can. ultimately, this is the best insurance that we can take out against the uncertain world in which we live. i would now like to turn to the three issues that i mentioned at the start : expanding the supply side of the economy, housing, and inflation. in each of these areas, the situation in australia is different from that in most of the other developed economies. expanding the supply side australia starts the current expansion with considerably less spare capacity than earlier thought likely, and with less than at the starting points of previous expansions. this is clear from surveys of capacity utilisation by businesses. it is also clear from the labour market data, with the unemployment rate peaking at around 5¾ per cent, which was around the trough in the previous two cycles ( graph 1 ). these outcomes put australia in quite a different spot from that of most other advanced economies. in both the united states and europe the unemployment rate is around 10 per cent, and both economies are estimated to be operating at around 5 per cent below their potential. the issues we face are therefore quite different from those confronting most of the other advanced economies. elsewhere, the challenge is to get private demand to grow on a sustainable basis so that it can catch up with the supply potential of the economy. in contrast, for australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise. this is unambiguously a better position to be in, but it does pose some challenges. the obvious keys to improving the supply side of the economy are investment and productivity growth. in terms of investment we are doing well, with australia having become a high investment country over recent times. currently, business investment is equivalent to around 16 per cent of gdp – not far below its peak level in the past four decades – and is expected to rise a little further over the next couple of years ( graph 2 ). investment in the resources sector has been particularly strong, and this is now starting to bear fruit, with resource exports rising recently following a number of years where there was little growth ( graph 3 ). over the years ahead, further significant increases in resource exports are expected. the high overall rate of investment means that the capital stock is increasing at a faster pace than over recent decades, and this should underpin continued growth in the supply potential of the australian economy. in contrast,

sector and so much stronger than investment in other advanced economies? fairly obviously, it is because mining companies expected that demand in the future was going to be strong. the other factors affecting these investment decisions were generally comparable with those in other parts of the economy. funding was as cheap and readily available ; uncertainty was not obviously any more or less. indeed, the long horizons for these projects meant that uncertainty was at least as large as in other sectors. non - mining business investment now i will turn to investment in the non - mining sector. the sharp contraction in business investment during the financial crisis, and the subsequent weak recovery, has primarily been a phenomenon of advanced economies. [ 1 ] a large body of literature has attempted to explain the underwhelming pick - up in investment and has attributed it to a range of factors, which i will spend some time discussing. australian non - mining investment ( in real terms ) is currently around 17 per cent higher than it was at q1 2008. by way of comparison, investment spending in the us has increased by about the same amount, while in the uk it has risen by 13 per cent, by 3 per cent in japan but in the euro area it is still 4 per cent lower than in 2008. in all of these cases, this is a disappointingly low level of investment spending. what has been holding investment back? there are a number of possible explanations, some of which i will discuss here. [ 2 ] in doing so, in a number of cases i will use evidence from a new database from the abs called blade ( business longitudinal analytical data environment ). the blade database contains matched administrative and abs survey data for ( almost ) all australian firms with data available from 2002 to 2015. it includes annual data on capital purchases, sales, capital stock, wages and a number of other variables. the data on capital purchases are well aligned with investment spending in the national accounts and coverage is considerably larger than that in the abs capital expenditure survey ( graph 5 ). http : / / www. rba. gov. au / speeches / 2017 / sp - dg - 2017 - 11 - 13. html 5 / 13 13 / 11 / 2017 business investment in australia | speeches | rba graph 5 weak economic growth an obvious candidate to explain the post - crisis behaviour of investment is weak aggregate demand. research finds that much of the weakness in global investment since the crisis can be explained by slower economic growth. [ 5 ] however, when we look at