Moody's: Australia's economy displays resilience to commodity price declines, but external financing risks linger

Moody's Investors Service says that Australia (Aaa stable) will be the fastest growing Aaa-rated commodity exporting economy in 2016 -- a reflection of its resilience to shocks, as export volumes have increased strongly despite falls in metals prices, and the services sector has benefited from a weaker domestic currency. Moody's expects Australia to maintain higher GDP expansion than Canada and Norway, and a similar rate to New Zealand (all Aaa stable) over coming years.

Aaa-rated Australia, Canada, New Zealand and Norway all export commodities, ranging from oil to iron ore to milk. While commodity prices have risen in recent months, they have not recovered from the sharp falls seen in 2013 and 2014. Moody's assumes that commodity prices will remain well below their previous peaks over the next few years.

Still, Australia - like New Zealand - faces external financing risks. Trade and current account deficits spanning several decades reflect a reliance on external financing, and leave both countries vulnerable to shifts in investor sentiment. But the robustness of Australia's institutions, deep capital markets and low foreign currency debt mitigate the risk of any abrupt tightening in financing conditions.

Moody's conclusions are contained in its just-released report on Australia, entitled "Government of Australia - Comparison with Commodity-Exporting Aaa Peers Reveals Economic Resilience, but also External Financing Risks."