Latest GDP figures show the mining-boom party is kicking on, but we’re doing ok on the rebalance. Going forward, Chinese demand will be less about raw materials, and more about consumer goods and services. Are we ready?

You’ve got to admit, the latest GDP figures were pretty sweet.

They surprised everyone on the upside, and pointed to an economy doing much better than we thought… or feared.

They recorded 1.1 percent in the quarter for an above trend 3.5 percent over the year. Yep. That’s the sound of an economy over-performing.

Again, Australia is the envy of the world. European leaders must be pulling Tony Abbott aside and asking him how we do it. You don’t look any smarter than the rest of us.

And the truth is we’re not. Our winning streak in recent years has had nothing to skill or management – even strategic draft picks. It all comes with living in the lucky country.

Lucky in the sense that we had a whole lot of useful dirt lying all over the place. And Lucky in the sense that we were able to dig it up and flog it off to foreigners, just as prices were booming.

Tony Abbott’s advice to European leaders? Get more dirt.

And the latest GDP figures show that the lights are still on and the music’s still playing at the mining-boom party.

Mining production grew a bumping 8.6% in the quarter. No one saw that coming. And almost all of that would have been exported, helping explain a thumping 4.8% increase in exports.

Both of these fed into the over-sized gains in GDP growth this quarter.

The mining boom has had three phases, and these production figures represent the boon of the third phase – the production phase.

First up there was the prices phase, kicking off around the turn of the millennium. Export prices peaked in mid-2011, and have since fallen a fair way, although they remain a lot higher than they were before the boom started.

Following the price phase was the investment phase – where mining multi-nationals, turned on by the prospect of higher prices and higher profits – started investing in large projects around the country.

Mining investment spending peaked in 2012 and has since started falling. It fell a further 8% this quarter, subtracting from growth.

Finally, all that investment has to create something, and that brings us to the third, production phase – this is the warm glow we’re enjoying now.

But it can’t last. Unless investment recovers, which looks unlikely unless prices recover, which also looks unlikely, sooner or later production will start to level out. Once it stops growing, which possibly isn’t far away, it stops contributing to GDP growth.

For the economy to keep growing, we need the non-mining economy (yes, Australia has one) to kick into gear.

And this is where the real sweetness in the latest GDP figures is. So while mining investment fell 8%, non-mining investment rose a very healthy 3% in the quarter.

That’s a very decent result, and gives us some hope that our much-needed, much-talked about ‘rebalancing’ might be coming through.

The other big ticket item was housing construction. That was up a stellar 4.7% in the quarter, though you would expect this at this stage in the housing cycle, as booming prices encourage builders to step it up a gear.

Consumption still looks feeble and blah, growing just 0.5% in the quarter. Over the year it grew at 2.8%. That’s pretty shabby, but slap a fresh shirt on it and it’ll get by.

All told, Ross Gittins calculates that of March’s bumping result, about half came from the mining sector, and half came from the rest of the economy.

From where we are now, with the mining boom winding up, that’s actually a pretty good result. This ‘rebalancing’ looks like it’s got legs.

But without the mining boom putting a rocket up us, does that mean our glory days are over? Are we facing relegation to the junior leagues of middling and unimportant nations?

Well, not if we play our cards right.

A huge part of the mining boom was driven by an explosion in demand from China. As China sought to pry nations upon nations off poor peasants from the grip of rural poverty, they created massive demand for materials to manufacture cities for their people, and energy to power it all along.

But that was just the first phase in what is a mind-bogglingly huge and rapid transition.

And while the first phase was driven by state-planners and the communist party, the next phase will probably be driven by consumers.

According to ANZ, Chinese consumers spent $3.6 trillion on goods and services last year. To put that in perspective, that’s about the size of the entire German economy, itself the biggest in Europe.

BUT, consumption still only represents about 36% of China’s total GDP. The world average is about 60%.

That means there’s huge upside to the Chinese consumption story.

And just as the state-planners created massive demand for Aussie iron ore, coal and gas, the Chinese consumers are opening up fertile plains for Australian companies.

But it’s a much more competitive market. We got lucky, being born into the sandpit with the best dirt. Geography is our friend again this time around, being the most advanced economy in the region, but we’re going to have to work a little harder… and smarter.

It’s going to require a bit of vision, balls and good old-fashioned ingenuity. This is a major challenge for a country grown fat and lazy from doing nothing but sit on an expensive piece of dirt.

Exciting and challenging times ahead.