Deputy Reserve Bank governor Guy Debelle’s latest speech on the state of the economy can be summarised in just one word – ‘phew’.

The speech, delivered to a Sydney conference on Monday, makes two important points about where the economy is heading.

The first, is that investment in the non-mining parts of the economy is finally starting to show signs of picking up.

It has fallen mightily from its peak at around 18 per cent of GDP, but has bottomed out at around 12.5 per cent – a larger slice of GDP than currently seen in US, Canada or the UK.

The second is that most of that pick-up is due to a global, not local forces.

The “animal spirits” are stirring in Europe, Japan and the US and that, in turn, lifts the prospects of our biggest trading partner China.

With typical RBA understatement, Mr Debelle notes that this development is “timely”.

It’s much more than that. The RBA board has pulled off the central-banking equivalent of a double somersault with half twist, into a pool that may or may not have contained any water.

Skill, then luck

The first part of that manoeuvre should be remembered as astute economic management under pressure.

In 2008, when the world entered the terrifying ‘credit crunch’ phase of the GFC, the Bank slashed rates very quickly, from a pre-crisis 7.25 per cent to 3.0 per cent by April 2009.

That, it turned out, was the easy bit.

What came next was a uniquely Australian experience. China’s huge stimulus boosted demand for our iron ore and coal, and the Rudd government’s stimulus spending buoyed local employment.

This created a conundrum for the Reserve Bank, because rather than struggling with a recession, as so many other central banks did, it faced growing inflationary pressures as the mining boom roared back to life.

Economist Saul Eslake tells me the really tough call that followed – to raise rates when most other nations were still cutting – was inspired by a historical fact: that we’d never previously emerged from an economic boom without a surge of inflation, followed by a slump into recession.

So there, in the heat of the GFC, the RBA decided to begin working against the inflationary forces of the Rudd stimulus plan by raising rates.

Did they go too far? Well yes, because having got the cash rate back up to 4.75 per cent between October 2010 and November 2011, the economy began to falter again – as the chart below shows, the RBA had to begin a rate-cutting spree all over again.

Blowing bubbles

So having managed the end of the mining boom pretty well, the Bank now found itself with very few options as the boom passed its peak.

The Bank got the cash rate down to a record-low 1.5 per cent, but found that the only growth low rates created in the economy was in house prices.

And that is essentially the pattern we’ve been in every since. Businesses have been very reluctant to invest and create jobs, but banks have been very keen to lend vast sums of money and push house prices through the roof.

That couldn’t last forever, and the big unknown what what would come next.

Everyone hoped local business investment would return, but there were no guarantees.

In the worst-case scenario, house prices would collapse and business investment would slump at the same time.

Thankfully, at this point in time, that’s not what’s happening.

Mr Debelle notes that many of the global firms that operate in Australia are making “investment decisions on a global basis rather than a local basis … there are signs that the generalised improvement in business sentiment is leading to a global reassessment of investment decisions and a synchronised global upswing in investment spending”.

He added: “The other area of investment that has been robust of late has been in those parts of the economy associated with infrastructure spending.”

All of that is timely indeed.

The RBA, sometimes helped and sometimes hindered by government spending, appears to have minimised the kind of hangover that has followed all previous economic booms.

On the other hand, its strategy of pumping up house prices and hoping for the best, could have gone very, very badly.

But sploosh. Just as the RBA’s strategy reaches its inevitable end, and house prices start to cool, there appears to be water in the pool after all.

Whatever else Mr Debelle says, the RBA board has probably already sighed a collective ‘phew’ behind closed doors.