recessions in 2001 and 2008 / 9, the economic downturns in australia around those times were relatively mild. it has been 20 years since the australian economy experienced a year of negative growth. this represents the longest period of uninterrupted growth in australia ’ s economic history, and one for which there are few precedents among the developed economies. why have the paths of the two economies diverged? i don ’ t think i can provide an exhaustive or conclusive answer to this question, but there are a couple of factors that have clearly played significant roles. first, both the 2001 and 2008 / 9 recessions in the united states were to a large degree the consequence of financial misadventure. the former was heavily influenced by the collapse of the “ tech ” bubble, and the latter by the collapse of the sub - prime housing bubble. australia was not affected nearly as seriously by either of these events. the tech bubble largely missed australia. in fact, in the late 1990s australia was constantly being berated for bis central bankers ’ speeches being an old - world economy in that it did not have a home - grown information technology industry. as it turns out, being a heavy user of technology, but not a manufacturer of it, was an advantage. the australian economy was not distorted by the tech bubble that built in the late 1990s, and it did not weaken as much as the us economy when the price of tech stocks collapsed in 2001. the mildness of the 2001 economic slowdown in australia meant that the reserve bank was able to normalise interest rates relatively quickly thereafter. in the event, this helped australia avoid the worst of the excesses in housing markets that subsequently built up in many other countries. the housing market was most “ frothy ” for australia as a whole around 2002 – 2003, and it cooled noticeably in 2004 as interest rates rose. while there were subsequent price increases in particular cities, the speculative element in the market had subsided considerably in most states by the time the global financial crisis hit in 2008. aside from increasing interest rates, the reserve bank also warned repeatedly around that time about the danger of excessive increases in house prices and borrowing, which may have, at the margin, curtailed some speculative activity. it was also helpful that the australian prudential regulation authority ( apra ), the prudential supervisor, pressed the banks to maintain relatively high lending standards. while there was some sub - prime lending activity in australia, it was on

generally been taken as a sign of weak consumption overall. but the national accounts showed that household spending on services has been strong. households are spending more on entertainment, eating out and travel, particularly overseas travel. at one level, this was surprising given the clear signs of caution among households, but it is less surprising when account is taken of the on - going fast pace of increase in household income. for a time, this increased income was used to rebuild saving, but with the household saving ratio having stabilised in recent quarters, income growth is now providing the wherewithal to fund consumption. the national accounts also showed that australia ’ s gdp continues to be affected by the severe effects on mining activity of the floods over the australian summer. taken literally, the weakest sector of the australian economy over the past year has been the mining sector, where output has fallen by 9 per cent over the past year. we know this is in the process of being reversed, so we need to look through it to judge the underlying strength of the economy. our estimate of the underlying trend in mining - related activity over the next couple of years is for increases in the order of 10 to 15 per cent. the rest of the economy on the other hand, is growing at an annual rate of only about 2 per cent. this is below what would have been regarded as normal in the past. this slow pace of growth in the non - mining sector is not simply a matter of a shortfall in demand. there are signs that the capacity of this part of the economy to supply goods and services has also slowed. for one thing, growth in the working - age population has slowed markedly over the past couple of years, due largely to a slowdown in immigration. also, bis central bankers ’ speeches productivity growth continues to be low. for growth in the non - mining economy to pick up, it is likely that these trends will need to reverse. labour market data are available up to august. they continue to point to soft outcomes for employment, after the surprisingly fast increase last year. the unemployment rate has also risen by 0. 4 percentage points over the past few months, after having been steady at around 5 per cent for much of the year. these trends could be an indication of the economy having slowed recently to a pace that is below its potential. on the other hand, there are some aspects of labour market numbers that have a stronger feel. contrary to the slowing in the number of people employed, there has been