The economy Jobs numbers show the big shift from mining to services is happening. But policy-makers have much more to do to make sure that the trend sticks.
Like a stage play with a heckler in the crowd, Australia's rebalancing act has not been running exactly to script. Greater than expected falls in commodity prices and a business sector that has been reluctant to make investment plans have interrupted the performance.
Nonetheless, the show must go on. As mining investment and commodity prices fall, growth has been slowly rebalancing to other industries. Growth has been below trend, running at 2 per cent over the past year, but Australia has still been more fortunate than other commodity-producing nations such as Brazil, Russia, Canada and South Africa, which have all had GDP contracting in recent quarters. 
Australia's rebalancing has been most apparent so far in strong growth in housing prices and construction, in response to low interest rates. This has been an important source of momentum for the economy, but we believe this upswing cannot continue indefinitely. Indeed, a continuation of the current pace of growth in activity could lead to excessive housing prices and an over-supply of dwellings. Australia needs another driver of growth.
Thankfully, the rebalancing act does appear to have moved on to its next scene, with signs that conditions are improving in the services and manufacturing sectors. In our view, it is services that present Australia's next big growth opportunity.
The clearest evidence of the pick-up in the services sectors is in the job numbers. Over the past year, 286,000 jobs have been created in the services sector, while other areas of the economy, including mining, have had 49,000 jobs cut. The largest contributors to jobs growth have been in healthcare, professional, accommodation and food services. We expect these trends to continue to support the labour market. After all, services account for more than 80 per cent of all the jobs in Australia.
Domestically, demand for services is being driven by low interest rates, rising asset prices, shifting preferences and solid population growth. Household consumption of services accounts for the bulk of consumer spending and 44 per cent of overall GDP, a large chunk of the economy.
Foreign demand for services is also rising, as Asia's middle-class incomes increase and the Australian dollar falls. Tourism and education exports continue to expand strongly and net exports of services have contributed more to GDP growth than iron ore exports over the past year.
China is a key driving force behind the pick-up in tourism and education exports. Chinese visitors to Australia have more than doubled over the past five years, from 400,000 to 940,000 people a year. There is also significant scope for these numbers to continue to increase, not least because only 4 per cent of China's population has a passport now. Excluding visits to Hong Kong and Macau, Chinese overseas departures have risen from 14 million to 32 million people a year over the past five years. HSBC expects Chinese outbound travel to double over the next decade.
Education exports are also picking up, with this year's first-quarter international enrolments at Australian institutions reaching record highs. Chinese students account for the largest share of new enrolments and education services are already Australia's fourth-largest export.
Business services also represent another export opportunity. Strong and growing trade, financial and population linkages between Australia and Asia should support growth of these services. Australia possesses technical expertise in financial market development, health services, design and, of course, natural resource extraction that could be exported to the emerging Asian economies.
A key support for services exports has been the lower Australian dollar, but policymakers also have a significant role to play. Provision of services is a competitive market and Australia's comparative advantage is less clear in these industries than it is for resources exports.
We believe Australia needs to do a better job at accessing foreign markets. The World Trade Organisation's Enabling Trade Report ranks Australia as 134th of 138 WTO members in "foreign market access". Key barriers include identifying potential markets and buyers, tariff barriers abroad and burdensome procedures at foreign borders. Recent free-trade agreements with China, Japan and Korea are positive steps to supporting increased trade and financial linkages with these economies.
Policymakers also ought to be focused on strategies that reduce the cost of doing business in Australia and make it more attractive for non-mining businesses to invest. Tax and regulatory reform would help to support Australia's competitiveness. The WTO says Australia ranks 118th out of 134 WTO members on ease of complying with government regulations. By comparison, Canada is 47th and New Zealand 13th.
Finally, improving Australia's urban infrastructure should be a priority. Australia's large cities are where much of the services activity occurs and improving roads, railways and overall connectivity would help to improve cost competitiveness and efficiency.
We believe that Australia has many growth opportunities as its linkages to Asia continue to strengthen. Taking advantage of these opportunities will require reform. The show must, and will, go on.
Paul Bloxham is chief economist Australia and New Zealand for HSBC.