By Ian Chua
SYDNEY, Sept 1 (Reuters) - Transitions are never easy, let alone for a $1.1 trillion economy, but Australia appears to be weathering the end of a once-in-a-lifetime mining investment boom about as well as can be expected.
Helping cushion the economy from the loss of mining investment are record low interest rates and a "lower for longer" outlook, both of which have fuelled a housing boom in Sydney and Melbourne and in turn underpinned household spending generally.
Indeed, Australia's central bank is expected to hold interest rates steady at a record low 2.0 percent on Tuesday, ahead of second quarter growth data on Wednesday.
Capitalising on the household sector's strength, homeware stores such as Harvey Norman HVN.AX , JB Hi-Fi Ltd JBH.AX and discount chain Reject Shop Ltd TRS.AX have recently reported strong full-year earnings and forecast another positive year ahead. ID:nL3N10L077
"Every week we have seen transaction growth and on top of that, basket-size growth," said Reject Shop chief executive Ross Sudano. "We are getting consistently more people in our stores."
A recent drop in the Australian dollar to six-year lows on a trade-weighted basis =AUD and towards 70 U.S. cents AUD=D4 was a welcome relief for exporters, many of whom have long complained about the strength of the local currency.
The investment gap left by miners has not been filled by other businesses. As a result, Australia's annual growth rate has slowed to below 2.5 percent in the past two years and is seen likely to stay there, below its long-term average of around 3.1 percent.
Analysts polled by Reuters expect Wednesday's second quarter GDP data to show growth of 2.2 percent, a far cry from the mining boom years' average of around 3.3 percent.
Mining investment fell to below A$80 billion in the financial year ended June 2015, from nearly A$100 billion in the 2012/13 fiscal year, and is set to fall further as miners move to the production phase and cut spending, a factor compounded by slumping global commodity prices.
Even so, Australia remains among those select few countries that have not suffered a recession in over two decades. But
it is now a transition economy showing 'unremarkable growth' as clearly highlighted in the corporate earnings reporting season just ended.
"Profits didn't soar or slump. Same for dividends and same for cash levels. But that is entirely understandable when you consider the unremarkable performance of the Australian economy over the past year," said Craig James, chief economist at CommSec, which tracked the earnings of the top 200 companies.
"That is not to say that the financial health of Corporate Australia has deteriorated markedly. It hasn't. It is just that the operating environment has been tougher. Harder to generate revenue, harder to generate profits and harder to improve bottom line results."
Facing similar difficulty in generating macroeconomic growth, the central bank has cut interest rates to a record low 2.0 percent in May.
Highlighting the bank's frustration over the slow pace of growth, RBA Governor Glenn Stevens last week urged an economic and social reform summit to focus its debate on growth, rather than on simply returning the federal budget to surplus.
Many suspect the central bank is done cutting rates for now, and will stay on the sidelines for an extended period. That said, a few commentators haven't ruled out the prospect of another cut should growth falter in China, Australia's biggest export market. ($1 = 1.3994 Australian dollars)