nearly all economic growth taking place in the mining-rich states of Western Australia and Queensland in what the Reserve Bank calls "a reallocation of productive resources within the economy."
The bleak assessment for NSW and Victoria is contained in the Reserve Bank's latest Quarterly Statement on Monetary Policy which warns that the Australian high dollar will blunt the competitiveness of export and import-competing industries such as tourism and manufacturing concentrated in Australia's south east.
The bank says the giant $50 billion Gorgon liquefied natural gas off Western Australia and a "pipeline" of other big projects is set to push mining investment beyond its "already very high level" leaving room for "only modest" growth outside the mining sector.
Were it not for government stimulus spending on education, health, public housing, communications and transport infrastructure, non-residential building approvals would be flat and non-mining investment weak.
Even so the Bank says the maximum effect of the stimulus package has now passed leaving private demand the most important driver of growth in the future.
And in an ominous sign for states not benefiting from a mining boom... and in a departure from its usual practice it points to private sector forecasts of three more interest rate hikes this year saying that by December "the cash rate is expected to reach around 4.5 per cent," up from its present 3.75 per cent.
"That combination of a higher interest rates and a high exchange rate and will be bad for Sydney and Melbourne and relatively good for Perth and to a lesser extent Brisbane," said Access Economics director Chris Richardson.
"There's a chance that by the end of the end of the year we will return to the two-Australia situation we had at the peak of the last mining boom in 2008."
"But it won't happen if the mining boom falters."
"We well and truly have the China dragon by the tail. If it slips at all, we won't return to two Australia's, we'll have slow-down trouble instead of boom trouble."
The Reserve Bank believes unemployment has peaked and expects a return to normal economic growth this year of 3.25 per cent, with the lion's share going to the resource-rich states.
Published in today's SMH and Age
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