Is Australia heading towards a recession after around 25 years of unbroken economic growth?

That is the big question after the fast unravelling mining boom has seen business investment take its biggest dive since records began in 1989.

With capital expenditure — or CAPEX — down 9.2 per cent in the third quarter, the light at the end of the tunnel could be a long-awaited recovery in local manufacturing and services.

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But there is one critical factor — maintaining a low or even Australian dollar which today is hovering at above $US0.72.

Frank Gelber, chief economist for the forecasting group BIS Shrapnel, does not believe the crash is enough to push the Australian economy over the edge into a recession.

But he warns Australia will continue to be rattled by falling investment in mining for a number of years yet.

"We're about 12 per cent through a 60 per cent decline in mining investment and that will dominate business investment figures over the next two years until we get to the bottom," Mr Gelber said.

"But we already have the seeds for the recovery in the lower dollar which will improve the prospects for trade exposed industries — tourism, education services, agriculture, business services and even manufacturing."

Mr Gelber has one important caveat to Australia's non-mining sector recovering — the direction of the Australian dollar.

"It's absolutely critical," he said.

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"If you talk about the non-mining sector demand, profit and investments have been weak since the GFC (global financial crisis)."

"And it will take another few years for it to start to pick up but because of the low dollar the first sectors to recover will be those trade exposed industries which have effectively been in recession for a decade for the period that the dollar was too high.

"Now they're going to have to spend money on refurbishment and then later investment which will start to broaden the recovery through the services sectors into construction and we will see a spin off into other non mining sectors which will gradually build momentum."

However, Mr Gelber said a much lower Australian dollar would be required to kickstart manufacturing which saw Holden, Toyota and Ford recently announce plant closures — all decisions made when the dollar was at parity with the US currency.

Despite the uncertain outlook and the importance of a consistently low dollar, Mr Gelber does not believe Australia is about to experience its first recession in a quarter of a century.

"No. We're going to have a soft economy until we finish the transition from the mining boom," he said.

"It's another two years before we get there, probably three before we see non-mining picking up."

The collapse in business investment makes next week's official economic growth figures (GDP for the third quarter) a bigger event than it already is, and underscores the long-term challenges as the Reserve Bank and Treasurer Scott Morrison manage the transition from the biggest mining boom in 150 years.

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