christopher kent : australia's economic transition - state by state address by mr christopher kent, assistant governor ( economic ) of the reserve bank of australia, at the australian business economists conference dinner, sydney, 22 november 2016. * * * i thank sean langcake and merylin coombs for invaluable assistance in preparing these remarks. introduction i am grateful for the opportunity to address you all this evening. it is fitting for my final speech in my capacity as the bank ’ s chief economist to be in front of such a pre - eminent group of australia ’ s business economists. i want to talk about australia ’ s economic transition following the end of the resources boom. my focus will be on developments affecting broader economic conditions, and the labour and housing markets more specifically. a key theme of my discussion is that aggregate, economywide variables – such as investment, unemployment or housing prices – often mask important differences across the states. understanding those differences can give us a better appreciation of how the australian economy is performing and is likely to evolve. before focusing on those differences, though, i ’ ll start with an overview of the overall economy. about two weeks ago, we published our updated forecasts. the flow of data over recent months had been broadly in line with our earlier expectations and so the forecasts were generally little changed. the economy continues to adjust to the end of the resources boom ( graph 1 ). our expectation is that gdp growth will be close to potential growth over the next few quarters and pick up to be a little above potential thereafter. the unemployment rate, which has declined over the past year by more than expected, is likely to edge just a little lower over the next two years. that implies that there will be some spare capacity in the labour market for a time. inflation is low. in year - ended terms, we expect underlying inflation to remain around 1½ per cent for a few quarters before gradually increasing to more normal levels. that profile follows from the forecast for the growth of labour costs to rise gradually and is consistent with the medium - term inflation target. 1 / 14 bis central bankers'speeches two key forces shaping developments over recent years have been the large fall in mining investment and commodity prices. mining investment has a bit further to fall, but by our estimates about 80 per cent of the adjustment is now behind us. resource exports still have further to grow. meanwhile, growth of activity in the non - mining sector has risen gradually over recent years. that improvement

little over the past year. that is, there has been a rise in the share of employees who would like to work more hours than they do. they represent additional spare capacity. a rising share of part - time employment has been a structural feature of the economy over recent decades, reflecting both demand - and supply - side factors. 5 but the growth of full - time employment has been quite subdued since 2012, rising only briefly above its 20 - year average of 1. 3 per cent per annum. 7 / 14 bis central bankers'speeches once again, the national outcome obscures contrasting experiences across the mining and nonmining states. during the mining investment boom, full - time employment grew strongly in the mining states, whereas it was little changed across the rest of the country ( graph 7 ). 6 labour was going to where it was in greatest demand and being paid relatively handsomely – in both mining and non - mining sectors in the mining states ( see below ). 8 / 14 bis central bankers'speeches since 2012, however, the situation has reversed. full - time employment in western australia and queensland hasn ’ t increased and the unemployment rate across those two states has risen noticeably. that makes sense. from 2012, mining investment and commodity prices were in sharp decline. in addition to the retrenchment of mining - related employment, those forces have also had a noticeable knock - on effect to non - mining industries in those states, as the buoyant effects of strong growth of the population and household expenditure have been unwound in concert with conditions in the mining industry. the decline in full - time employment over 2016 appears to reflect a further decline in demand conditions within the western australia economy. one important part of that, the property market, has become progressively weaker, as i ’ ll discuss in a minute. moreover, wages appear to be adjusting to bring wage levels back towards those of the other states ( graph 8 ). part of that adjustment is occurring via a decline in wages in the mining sector relative to wages in other sectors. liaison reports suggest that wage pressures will be quite subdued in the mining states for a time. as that adjustment occurs, it will weigh on the growth of nominal demand in the mining states. 9 / 14 bis central bankers'speeches interestingly, full - time employment in the non - mining states remained weak up until about 2014. thereafter, those states have benefited not only from the decline in interest rates, but also from the positive effect on their tr