The latter is clearly the preferable outcome, although as yet there are few signs of a lift in productivity growth. A second question is the implications for inflation. If indeed potential output growth were to pick up, this would mean that the economy could grow more quickly over the medium term without causing inflation to rise.
But in the short term, producing and installing the increased capital can add to demand pressures in the economy. Of course, one way in which these pressures can be mitigated is by importing the required machinery and equipment. To some extent this is what has been happening. Much of the physical capital for a number of the large resource projects is, by necessity, imported.